DNA Money Edit: Housing finance to become thrust area for banks

The Monetary Policy Committee (MPC), headed by Reserve Bank of India governor Urjit Patel, has kept the repo rate (the rate at which the central bank lends to banks), unchanged at 6.25% for the fourth straight time. The reverse repo – rate at which RBI borrows – remains the same at 6%. It has reduced the statutory liquidity ratio (SLR) by 50 basis points to 20%, which is expected to boost liquidity in the system and make more 'lendable' resources available for various sectors of the economy, including infrastructure.

The move by RBI is clearly aimed at containing inflation and bolstering economic growth. It has lowered the projection for CPI inflation to 2-3.5% range in the first half of 2017-18 and 3.5-4.5% in the second half as compared to earlier projections of an average 4.5% in first half and 5% in the second half. The central bank also reiterated that the impact of demonetization is transitory on both inflation and growth.

Housing finance remains a thrust area for the government and RBI is playing the mandate well for them. Home loan rates are likely to fall after the central bank reduced the money that banks have to set aside as a buffer against home loans sanctioned and also lowered the down payments in home loans to encourage more borrowers to take loans. Reducing the risk weights will leave more money with banks to lend and also reduce the rates. The decision to reduce the risk weights for home loans over Rs 30 lakh category will release capital for the banking industry. This will also help banks increase their housing loan portfolio.