What could be the impact of the RBI repo rate hike on the fixed deposit, loan and real estate industries?

Mr. Jyoti Prakash Gadia, Managing Director, Resurgent India said, “While RBI is expected to increase the repo rate by 25 basis points, commercial banks are expected to respond pragmatically by suitably changing deposit and advance rates. of interest. The effect of change in interest rate has been gradually coming to the fore after the continuous increase in repo rate by RBI from May 2022. However, the increase in interest rates on loans has been much higher than that on deposits resulting in huge profits for banks With the current increase in the repo rate by 25 basis points, we expect banks to respond positively and attract additional deposits by raising deposit rates to attractive levels. Credit growth of banks has been good and they are expected to attract more deposits. is needed. On the credit front, since growth is already visible, the increase in interest rates should be modest. Any substantial increase in lending rates for home loans would make the loan costlier and the EMIs on these loans higher. will increase making housing unattractive. If loans become unaffordable, it can adversely affect the real estate market along with curbing demand. In the medium term, the real estate sector is highly sensitive and needs the expected support while keeping lending rates reasonable.”

Archit Gupta, Founder & CEO, Clear said, “Repo rate is the rate at which the RBI lends short-term funds to other banks. The repo rate is very closely related to the lending rates of commercial banks. Since the repo rate has been increased So banks will now have to pay more interest to RBI which in turn will be collected from retail/corporate borrowers of banks. This will result in higher interest outflow on loans taken from banks. Thus loan in general 1-2 % will be costlier.

“Deposit rates will also go up by some margin, making FDs more attractive and providing a source of fixed income. Due to this, more people will be willing to invest in FDs, which will create a shortage of free floating money in the market. This in turn will reduce the cost incurred by the retail customers of the banks.

CA Manish P. Hinger, Founder, Fintoo, said, “With the decision taken by a 4 out of 6 majority on the Monetary Policy Committee (MPC), the RBI today announced an increase in the repo rate by 25 basis points to 6.5%. Volatile Despite global developments, the Indian economy remains strong. The rate hike, which was in line with market expectations, surprised some who felt the rate pause was warranted given the recent softening of inflation in India. However, the RBI was more concerned about the impact of high and persistent core inflation and rate hikes by other major central banks on the forex market. Barring any unexpected rise in inflation, the RBI would expect a higher rate hike for the rest of 2023. It is expected to retain its current policy rate, which will benefit both debt and equity markets. The peak of the rate cycle is believed to be near, and the central bank is expected to start reducing rates in the next calendar year, As long as inflation remains under control, an increase of 25 basis points to Rs. This is seen as a measure to protect the sector from further depreciation, control import-driven inflation, and promote sustainable growth at or above 6.5%. As a result of this announcement, home loans are expected to become more expensive.”

Mr. Marzban Irani, CIO-Debt, LIC Mutual Fund said, “Normally, with a rise in repo rates, banks tend to hike FD rates and loan rates. However, it depends on the liquidity position and capital requirement of individual banks as FD rates have already increased in the last few months. In the current scenario, any meaningful increase in FD/loan rates seems unlikely given our view that yields may peak.”

Mahagram CEO Ram Shri Ram said that the Reserve Bank of India has increased the repo rate by 25 basis points. The decision is likely to have a profound impact on the Indian monetary system. Especially in terms of fixed deposits, loans and then real estate sector. With this increase, it is fair to say that the impact on the repo rate will definitely have an impact on the non-banking financial companies (NBFCs) and it will eventually trickle down to the consumers as banks can now raise their interest rates on fixed deposits and Loan. Most essentially, the central bank should bring financial stability to the lending companies. Also, fintech companies that provide retail banking services are likely to suffer due to decreased demand for their services. On the other hand, it also has to be considered that this will impact businesses in a big way as this is the sixth increase in the repo rate. Inflation is expected to remain at 4% and the governor expects it to average at 5.6% by the fourth quarter of 2023-24. The governor is confident of GDP growth, estimated at 6.4% in fiscal year 2024. However, since fintech companies are heavily dependent on low interest rates, this increase in the repo rate could have a long-term impact on their business. operations and profitability. He asserted that despite the challenging global environment, the Indian economy is resilient.

“We are now 0.25% above the pre-pandemic repo rate of 2019 and we expect this to be the end of the rate hike cycle,” said Binita Dalal, founder and managing partner, Mount K Capital. Has grown by 3% and the strength of the Indian economy is much better than the pre-pandemic level of 6.9% Average EMI for a loan of 50 lakhs has increased by 7000/- in the last 2 years even though the per capita income has increased by 18.3% thus showing the strength to absorb rate hikes. Real estate as a sector has continued to do well with promising sales numbers through the year and we are now nearing the peak of interest rates. We expect home sales to increase further. While we understand where the governor is coming from on this rate hike, we urge him to put a pause on it in order to reverse the growth trend of our economy. may be continued.”

Jyoti Bhandari, Founder & CEO, Lowac Capital said, “As we know, any increase in repo rate, as recently announced by RBI, usually leads to higher borrowing cost for banks The result: an increase in interest rates on loans by banks which in turn will make them more expensive for borrowers, in turn affecting credit demand and slowing down economic activity. On the other hand, an increase in the repo rate fixed Interest rates on deposits may rise, making it an attractive option for savings, resulting in fund transfers from loans to fixed deposits. The impact on the real estate sector is not easy to imagine. This is because Higher cost of borrowing may reduce demand for home loans and slow down the real estate market, but higher returns on fixed deposits may encourage investment in property. Other possible effects on the real estate sector result in lower affordability may occur because higher interest rates will increase the cost of ownership, Which would make it less affordable to potential buyers. Result: muted demand and prices in this space. Another fallout of the interest rate hike would be project delays, which would reduce the amount of new real estate projects launched. So, while the impact on loans and fixed deposits is relatively straightforward, its impact on real estate will be mixed. According to RBI, inflation is coming down but still it has decided to increase the repo rate by 25 bps as it seeks to align its policy with the US counterpart as the global economy is still resilient, amid fears of a recession in the US. Adverse.

Mr Amruthesh Reddy, Managing Director, NDR Warehousing said, “Despite RBI’s 25 bps rate hike being in line with industry expectations, the rise in commodity prices has already become a challenge for the logistics sector. Capital expenditure will now come down due to the hike, making it difficult for industry players to sustain their infrastructure projects. Though the RBI has made a commendable effort to control inflation and the rupee, the expansion of the infrastructure and logistics sectors may come in the way. To promote the contribution made by sportspersons to the Indian economy, we hope that concessions for infrastructure projects will become easier in future.”

Mr. Sandeep Bagla, CEO, Trust Mutual Fund said, “The 25 bp increase in repo rate by RBI was baked into bond yields. 2 out of 6 MPC members voted in favor of not increasing the rate. The market is a bit disappointed as there was no change in stance from the “return of adjustment” to neutral. CPI inflation is projected at 5.3% for FY24. Market forecasters are expecting inflation to be lower than RBI’s projections. The policy focused on fighting inflation. And that should be welcomed by the markets.”

Ms. Shalini Tibrewala, Senior Fund Manager (Fixed Income), JM Financial Asset Management Ltd. said, “The Reserve Bank of India hiked its key repo rate by 25 basis points as expected, but left the door open for more tightening. Inflation remained high. The global economic outlook does not look as grim as it did a few months ago. Growth prospects in major economies have improved, while inflation is on the downside, though still well above target in major economies The situation remains volatile and uncertain as RBI Governor Shaktikanta Das announced the rate decision of the Monetary Policy Committee. RBI hiked the repo rate by 25 bps to 6.50% for the sixth consecutive time in the current financial year , mainly to lower inflation expectations. Focuses on its stance of housing withdrawal to ensure that inflation remains within the target, while supporting growth. RBI growth forecast for FY22 to 7% (6.8% earlier) and retained the inflation forecast at 6.50% (6.7% earlier). -23 Growth for FY 23-24 is projected at 6.40% and CPI inflation at 5.30% respectively, with risks evenly balanced on either side.

Amit Shankar, Vice President – ​​Credit, Vivriti Capital said, “RBI’s prudent approach of long-term discipline is well established among global economies. Continuing with the same theme, the 25 basis points hike in the repo rate is targeted to contain inflation rather than provide short-term relief to recession concerns. We expect inflation to remain within the acceptable range, given the continued cautious stance of the RBI. While this could lead to slower credit growth in general in the near term, there are ample opportunities for credit discovery and solid middle-market companies in need of growth capital that could accelerate underwriting activity. We expect the RBI to take an accommodative stance if inflation moderates and economic activity picks up.”

Rajesh Shet, co-founder and CEO, Sahibandhu, said, “The 25 bps hike in the repo rate could have a major impact on the lending sector as interest rates for personal loans, home loans, etc. are likely to go up. For customers, interest rate is not the only selection criteria. Other factors like LTV [Loan To Value]Loan tenure, urgent need of funds, etc. are also considered while availing Gold Loan. For low-ticket loans, interest rate changes may not have a significant impact on interest expense. In fact, if more people are made aware of this appropriate loan source, they can make the most of this information and make gold loans their preferred choice over conventional loans to meet their financial needs. method can be considered. Gold loans are already a popular source of funding for those with limited access to other forms of credit, and the increased cost of borrowing through conventional loans could further drive the demand for gold loans.”