CRR cut by RBI: No immediate change in home and auto loan EMIs

here is no immediate respite to home, auto and corporate loan borrowers in terms of their monthly equated instalments (EMIs) but with the RBI reducing the cash reserve ratio (CRR), banks will have more money to lend.

After the Reserve Bank unveiled the third quarterly review of the monetary policy, several bankers said that they may not go in for rate cut immediately.

However, a few like Oriental Bank of Commerce Executive Director S C Sinha said the CRR cut would "definitely lead to reduction in interest rates."

Chairman of the Prime Minister's Economic Advisory Council and former RBI Governor C Rangarajan said that as the primary injection of Rs 32,000 crore liquidity (through CRR cut to 5.5 per cent from 6 per cent) would have a multiplier effect, the interest rates would soften.

"The improvement in liquidity condition will automatically have effect on the interest rates. It would lead to softening of interest rates," he said.

CRR is the percentage of bank deposit that lenders have to keep with the RBI. The new rate would be effective from January 28.

Since March 2010, the retail and corporate loans have become expensive for the borrowers but the fixed deposit holders had benefited from the 375 basis point hike in the short-term lending rate by the RBI.

Canara Bank Executive Director A K Gupta said banks would now get much-needed liquidity. This will also allay fears of further hike in base rate.

"Probably, interest rates may not come down immediately," he said, adding, the banks will however will have more cash at their disposal.

Concerned over upside risk on inflation, the Reserve Bank however, kept policy rate unchanged.

The the RBI opted to keep the repo rate, at which it lends to the banks, unchanged at 8.5 per cent, compelled by the worsening global economic outlook and decelerating domestic growth.

Reverse repo (rate at which the RBI borrows from banks) is also kept at 7.5 per cent.

RBI itself said that "CRR is the most effective instrument ... the reduction can also be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them."

Bank of India Executive Director N Seshadri said, "I don't think with the CRR, there would be a reduction in base rate and definitely rate cut would happen when repo rate is reduced." Expressing similar view, Dena Bank Executive Director A K Dutt said, "Softening of CRR would lead to 5 basis point reduction in cost of deposits. However, it would not have any impact on the interest rates."

RBI Governor D Subbarao said in a statement, "in reducing the CRR, the Reserve Bank has attempted to address the structural pressures on liquidity in a way that is not inconsistent with the prevailing monetary stance,"

"Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate.

"However, the persistence of tight liquidity conditions could disrupt credit flow and further exacerbate growth risks. In this context, the CRR is the most effective instrument for permanent liquidity injections over a sustained period of time," Subbarao said.

Rupee drop makes realty attractive for NRIs

Many NRIs are teaming up with like-minded buyers on real estate group buying sites to shop for flats in India. The cheaper rupee and deep discounts offered by developers through these portals has triggered a substantial jump in property-related enquiries from NRIs in the US, UK and the Middle East in the last three months.

London-based Nayan Bhavishi has poured more money into the real estate market in the country than in any other geography or asset category. An avid real estate investor, Bhavishi snapped up two ready-to-move-in flats in Vaastu project in Thane for Rs 1.20 crore through real estate portal Groffr.com.

"I was scouting for properties in India and stumbled upon this site offering good discounts. I got 25% discount on my property purchases and the exchange rate at Rs 84 to a pound was a big draw," he said. Bhavishi said he bought the property at Rs 4,200 per sq ft when the rates in neighbouring properties were between Rs 5,800 and 6,000.

In an increasingly tough environment, developers are warming up to group housing portals. Sandesh Wadhwa, cofounder of group-buying portal groupbookings.in, said many people sitting on the fence have swung into action in the last three months. "There is more demand coming from NRIs for mid-sized housing projects in Gurgaon, Bangalore, Hyderabad and Chennai," he said.

Sandeep Reddy, co-founder of Groffr.com, said the website has seen a healthy sales conversion rate in the last two months primarily driven by NRIs. "The mood among NRI investors is buoyant as they now need to spend fewer dollars or pounds for the same property. The sub-Rs 60 lakh properties are most in demand ," he added.

Vaibhav Sharma, assistant professor of finance at Winthrop University in South Carolina, has booked two flats in Gurgaon through groupbookings .in. "If I were to invest in the US, the property value would fetch me a negative return. It's a good time to enter the Indian real estate market, where I think I can expect at least 6% annualized returns in the residential space," he said.

Sharma's purchase decision was also driven by the favourable exchange rate. He bought the flats last September when the rupee was close to 50 to a dollar. "I also received a 10% discount by signing up on the portal. I didn't have to haggle or make several house hunting trips," Sharma added.

The REal Estate-RBI-Rates-EMI-Loans

The real estate sector is booming for the last one year. Belying apprehensions that the economic slowdown will impact the realty sector in the short to medium term, the residential sector is performing well in all the micromarkets of the national capital region (NCR) of Delhi, so far.

Even the RBI's measure to increase interest rates to contain inflation has not dampened the mood in the sector. The increase in interest rates, however, has led to slowdown in the economy.

In the last one year, interest rates went up by around 3 percentage points across the board. Home-loan rates have gone up to 11-12 %. This has increased the EMI by over 20% in the last one year.

But, the rise in the interest rates and the slowdown in economy have not affected the demand for residential units in the NCR so far. In fact, the property prices have increased substantially in the region, in the last one year. Experts feel that this was mainly because of the development of infrastructure in the last couple of years ahead of the Commonwealth Games, which made the NCR one of the most sought-after investment destinations in the country. But, at the same time, as there were not many new projects launched in the region, prices went up sharply.

For example, property prices in South Delhi went up by around 25% in the last one year. Prices in Mayur Vihar, Patparganj and Vasundhara Enclave in East Delhi; Dwarka, Rohini, Paschim Vihar and Uttam Nagar in West Delhi, all appreciated by up to 30% in 2011. Price appreciation in Noida, Indirapuram, Raj Nagar Extension, NH-24 , and NH-58 was even sharper. In many areas like Indirapuram, prices appreciated by almost 35%.

The Allahabad high court order on the allotment of land to developers in Noida Extension created uncertainties in the area. The judgment put a question mark on the supply of over 2 lakh affordable apartments , which would have been in close vicinity of central Delhi . This led to a sudden spurt in demand in the just-completed projects in Crossings Republik and Raj Nagar Extension , in the same area. The prices in these areas jumped overnight, by around 25%.

But the maximum appreciation in the last one year was at Gurgaon and its adjoining areas ; in some places, property prices went up by around 50%. Even Dwarka Expressway saw a steep rise of 50% in the prices of recently-launched apartments. Many of the apartments, which are still under construction, were available at Rs 3,000 per sq ft in early 2011; now, the going rate is Rs 4,500 per sq ft.

Some of the apartments in the area launched at over Rs 6,000 per sq ft. Similarly, the prices of apartments on Golf Course Road, Sohna Road, DLF City Phase V, and Manesar , etc, appreciated by around 25% in the last one year. Apartments on Golf Course Road in Gurgaon are being quoted between Rs 11,000 per sq ft and Rs 12,000 per sq ft.

On top of this, most of the projects launched in the last one year have been nearly sold out in all the micromarkets like Noida, Gurgaon, Faridabad, Kundli, Sonipat, etc. So much so, developers are encouraged to launch premium products, like skyscrapers, in Noida and Gurgaon, where the base prices have been pegged at around Rs 8,000 per sq ft.

Developers feel that the slowdown will not affect the demand for residential units in the country . High economic growth will certainly help in creating fresh demand for residential units, says R K Arora, the chairman and managing director of Supertech . Even during this slow growth period, there is enough demand for residential units to meet the insatiable requirements of end users.

At the same time, as the inflation has been already contained, the RBI may soon decide to lower interest rates. "There should be sharp improvement in the prospects of real estate all around. Interest cycle is likely to turn and with the impending fall in interest rates, buying sentiment should improve," says Pankaj Bajaj, president of Confederation of Real Estate Developers of India (CREDAI), NCR. "We foresee Year 2012 to be very positive as the demand and supply seems to be quite promising," says K K Goel, chairman of KDP Infrastructure.

As such, the number of new projects by developers takes a hit during a slowdown . As the cost of financing increases, developers find it difficult to start a project . Because of the turmoil in the developed economies, the foreign direct investment (FDI) in India gets badly hit. According to the latest data available, the FDI in real estate has come down from around Rs 14,000 crore in 2009-10 to Rs 2,000 crore in 2011-12 .

This has affected the availability of capital in the sector. This is likely to force developers to cut prices to increase their sales to end users, so that they could meet their capital requirements .

Therefore, during a slowdown , competition among developers gets intensified. To increase sales, they launch residential units in the affordable range. "Developers are mostly avoiding the premium segment which is susceptible to greater volatility. Demand for middle-class housing, especially in Tier II towns, will continue to be robust. Developers who focus on execution and delivery should not face any stress," Bajaj says.

Therefore, the economic slowdown is a good time for end users to bargain hard and buy their sweet home. "Over all, both developers and homebuyers have a lot to look forward to in 2012," Bajaj says.

Reliance Industries' Rs 10,440 cr share buyback to start from February 1

The country's most-valued firm Reliance Industries today said its Rs 10,440 crore share buyback offer will start from February 1 and closes on January 19, 2013.

In a public announcement, Reliance Industries said that the buyback which is possibly the largest such programme in the history of the Indian capital market, would start on February 1 and closes on January 19 next year (12 months from the date, the board of directors of the company approved the buy back).

RIL would buy back up to 12 crore equity shares worth Rs 10,440 crore from the open market at a maximum price of Rs 870 apiece in its first share buyback since 2005.

"The buyback is expected to increase shareholder value. The buyback of equity share will result in reduction of number of shares accompanied by possible increase in earnings per share and return on capital employed," RIL said.

"The buyback will also provide a tax efficient mechanism to return money to shareholders and create long term value for continuing shareholders," RIL added.

Citigroup global Markets and DSP Merrill Lynch has been appointed as the managers to the buyback offer.

Shares of RIL jumped by 2.21 per cent in early trade. In The shares were quoted at Rs 781.80, higher by 1.40 per cent, on the BSE at 1112 hrs.

Analysts said share buyback could be aimed at helping the stock regain its lost glory, given their sharp plunge of 35 per cent last year, against a fall of about 24 per cent in the market benchmark Sensex.

Shares of the company had tumbled by 3 per cent yesterday after the company reported its first drop in quarterly profit in more than two years due to falling refining margins.

Analysts had also attributed to the fall in share price to size of the buyback, which represented 3.7 per cent of the company's equity capital. RIL had in December, 2004, offered to buyback 10 per cent of its equity at Rs 570 per share.

RBI cuts CRR by 50 bps, interest rates unchanged

As expected, the RBI has slashed the cash reserve requirement (CRR) by 50 bps from the previous 6% to 5.5%. This move will result in primary liquidity injection of around Rs 32000 crore into the country’s banking system, which has seen the deposit growth rate outpace the credit growth rate in recent times.

The RBI’s move came as a pleasant surprise for investors on the street, and the markets soared post the announcement of the CRR cut. The Sensex is currently trading strong at 17043.64 points, up 1.74% over yesterday’s closing value.

However, the central bank has decided to leave the key policy interest rates like repo and reverse repo rate unchanged at 8.5% and 7.5% respectively. This is because the RBI continues to maintain caution over headline inflation. Despite the recent fall in food and primary articles’ inflation due to abating food prices, inflation in other items like manufactured goods and fuel continue to remain firm, posing a risk going forward. Even on the food articles’ inflation, the RBI has stated that the prices of seasonal food items have depreciated sharply but others like protein-based items haven’t shown any significant downtrend.

In light of these facts, we expect the RBI to first review the Dec IIP numbers (which will provide a clear picture on the growth in industrial activity), then analyse the near-term trend in inflation, and finally take a call on the roll-back of key interest rates in its next mid-quarter review scheduled for Mar 2012. The interest cycle has certainly peaked out, and the only way the interest rate can go from here is southward.

Among the other highlights of the latest policy review, the RBI has scaled down its growth forecast from 7.6% (second quarter review) to 7% in line with slowing economic growth activity. Its projection for headline inflation by the end of March 2012 has been maintained at 7%, which looks comfortable in the current situation.

In conclusion, we at DSIJ believe that the RBI’s stance in its mid-quarter policy review today has brought great cheer to the market sentiments at a time when investors were preparing to digest yet another quarter of dismal corporate earnings. Coupled with this are the positive flows from Europe, US and the emerging markets of China and Brazil, which points towards a good year 2012 ahead. This rally that we have seen today is most likely to be carried forward, and investors would enjoy the ride.

Key Policy Rates	Dec-11	Jan-12
Repo Rate	8.5	8.5
Reverse Repo Rate	7.5	7.5
CRR	6	5.5
SLR	24	24

Comparison of NRE Fixed Deposit Interest Rates of Banks

rest rates on Non-Resident (External) Rupee (NRE) Term Deposits have been deregulated by Reserve Bank of India on 16-12-2011. After the deregulation almost all the banks have hiked their interest rates on Non-Resident (External) Rupee (NRE) Term Deposits in December 2011/ January 2012.

A comparison of Non Resident (External) Rupee Term Deposit Account (NRE) Interest Rates of Banks for an amount of below Rs. 1 crore (Updated as on 04-01-2012) is as under.   (For more details click on the respective Name of the Bank)

Sr. No.	Name of the Bank	w.e.f.	Tenor/Period	ROI
Public Sector Banks
1	Allahabad Bank	04-01-2012	1 Year to < 2 Years	9.50
			2 Years to < 3 Years	9.00
			3 Years only	8.75
2	Andhra Bank	01-01-2012	1 Year	9.40
			> 1 Year upto 2 Years	9.25
			> 2 Years upto 3 Years	9.00
3	Bank of Baroda	29-12-2011	1 Year & above but < 2 Years	9.25
			2 Years & above but < 3 Years	9.25
			3 Years & above but < 5 Years	9.00
4	Bank of India	01-01-2012	1 Year to < 2 Years	9.00
			2 Years to < 3 Years	8.00
			3 Years and above	7.00
5	Bank of Maharashtra	01-01-2012	1 Year to < 2 Years	9.00
			2 Years to < 3 Years	8.75
			3 Years to < 5 Years	8.75
			5 Years to 10 Years	8.50
6	Canara Bank	29-12-2011	1 Year & above to < 2 Years	9.25
			2 Years & above to < 3 Years	9.25
			3 Years & above to < 5 Years	9.25
			5 Years & above to 10 Years	9.00
7	Central Bank of India	01-01-2012	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.00
			3 Years only	8.75
8	Corporation Bank	30-12-2011	1 Year to < 2 Years	9.50
			2 Years to < 5 Years	9.25
9	Dena Bank	23-12-2011	1 Year only	9.60
			> 1 Year to < 2 Years	9.25
			> 2 Years to < 3 Years	9.25
			3 Years only	9.25
10	Indian Bank  @	28-12-2011	1 Year & above to < 2 Years	9.50
			2 Years & above to < 3 Years	9.50
			3 Years & above & upto 5 Yrs	9.00
11	Indian Overseas Bank	01-01-2012	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.25
			3 Years to < 5 Years	9.25
12	Oriental Bank of Commerce	02-01-2012	1 Year to < 2 Years	9.75
			2 Years to < 3 Years	9.25
			3 Years to < 5 Years	9.25
			5 Years only	9.25
13	Punjab & Sind Bank	02-01-2012	1 Year to < 2 Years	9.50
			2 Years to < 3 Years	9.25
			3 Years & upto 5 Years	9.25
14	Punjab National Bank	01-01-2012	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.25
			3 Years to 5 Years	9.25
15	Syndicate Bank	29-12-2011	1 Year & above to < 2 Years	9.35
			2 Years & above to < 3 Years	9.35
			3 Years & above upto 5 Years	9.25
16	UCO Bank #	02-01-2012	1 Year to < 2 Years	9.50
			2 Years to < 3 Years	9.25
			3 Years to upto 5 Years	9.25
17	Union Bank of India	27-12-2011	1 Year to < 3 Years	9.25
			3 Years to < 5 Years	8.75
			5 Years & above	8.50
18	United Bank of India	02-01-2012	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.25
			3 Years to upto 5 Years	9.25
19	Vijaya Bank	01-01-2012	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.00
			3 Years to < 5 Years	9.00
			5 Years & above	8.75
SBI & Associates
20	State Bank of Bik & Jaipur	01-01-2012	1 Year & above to < 2 Years	9.50
			2 Years & above to < 3 Years	9.50
			3 Years to 5 Years	9.50
21	State Bank of Hyderabad	03-01-2012	1 Year to < 2 Years	9.40
			2 Years to < 3 Years	9.25
			3 Years & upto 5 years	9.25
			Above 5 Years & upto 10 Years	9.25
22	State Bank of India	01-01-2012	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.25
			3 Years to < 5 Years	9.25
			5 Years to upto 10 Years	9.25
23	State Bank of Mysore	04-01-2012	1 Year & above but < 2 Years	9.50
			2 Years & above but < 3 Years	9.25
			3 Years & above upto 5 Years	9.25
			5 Years & above upto 10 Years	9.25
24	State Bank of Patiala		1 Year & above to < 2 Years
			2 Years & above to < 3 Years
			3 Years & above upto 5 Years
25	State Bank of Travancore	01-01-2012	1 Year to < 2 Years	9.50
			2 Years to < 3 Years	9.50
			3 Years & above upto 5 Years	9.25
Private & Foreign Banks
26	Axis Bank $	04-01-2012	1 Year & above to < 2 Years	9.00
			2 Years & above to < 3 Years	9.00
			3 Years & upto 5 Years	8.50
			5 Years & upto 10 Years	8.50
27	Dhanlaxmi Bank	26-12-2011	12 Months to < 24 Months	8.00
			24 Months to < 36 Months	8.00
			36 Months to upto 10 Years	7.75
28	Federal bank	01-01-2012	1 Year only	9.50
			Above 1 Year to < 3 Years	9.25
			Above 3 Years	8.75
29	HDFC Bank	04-01-2012	1 Year	7.25
			1 Year 1 day to 1 Year 15 Days	9.00
			1 Year 16 days	9.25
			1 Year 17 days to 2 Years	8.50
			2 Years 1 day to 2 Years 15 Days	8.50
			2 Years 16 days	9.25
			2 Years 17 days to 3 Years	8.50
			3 Years 1 day to 10 Years	8.25
30	ICICI Bank	29-12-2011	1 Year to 389 days	8.25
			390 / 590/ 790/ 990 days	9.25
			391 days to 589 days	8.25
			591 days to < 2 Years	8.25
			2 Years to 789 days	8.50
			791 days to 989 days	8.50
			991 days to < 3 Years	8.50
			3 Years to 10 Years	8.75
31	IDBI Bank	28-12-2011	1 Year	9.25
			1 Year 1 days to 10 Years	9.50
32	ING Vyasa Bank  %	31-12-2011	365 days	8.75
			366 days	9.50
			367 days to 500 days	9.50
			501 days to 1095 days	9.25
			1096 days to 5 years	9.00
33	J & K Bank	31-12-2011	1 Year to < 2 Years	9.25
			2 Years to < 5 Years	9.50
			5 Years to 10 Years	9.00
34	Karnataka Bank	19-12-2011	1 Year to < 2 Years	9.75
			2 Years to < 3 Years	9.50
			3 Years & upto 5 Years	9.50
35	Karur Vyasa Bank	24-12-2011	1 Year to 2 Years	10.00
			Above 2 Years to 3 Years	9.75
			Above 3 Years	9.50
36	Kotak Mahindra Bank	27-12-2011	1 Year to < 2 Years	9.25
			2 Years to < 3 Years	9.00
			3 Years to 5 Years	8.50
37	Laxmi Vilas Bank	22-12-2011	1 Year to < 2 Years	10.00
			2 Years to < 3 Years	8.00
			3 Years & above	7.00
38	South Indian Bank	02-01-2012	1 Year to 2 Years	9.50
			Above 2 Years	9.25
39	Yes Bank	23-12-2011	1 Year to < 3 Years	9.00
			3 Years & above	8.75
			15 Month 15 Days to 16 Months	9.60

@ Indian Bank – These rates are applicable for deposits less than Rs. 15 lacs only. For deposit of an amount of Rs. 15 lacs & above upto Rs. 5 croes interest will be 0.25 % lesser for periods less than 3 years.

# UCO Bank – These rates are applicable for deposits of Rs. 15 lacs & above. For deposits less than Rs. 15 lacs interest will be 0.50 % less for all maturities.

$ Axis Bank – These rates are applicable for deposits of Rs. 15 lacs & above. For deposits less than Rs. 15 lacs interest will be 6.50 % for all maturities.

% ING Vysya Bank – These rates are applicable for a deposit of Rs. 15 lacs to < Rs.100 lacs. For deposits upto Rs. 15 lacs ROI will be 0.25 less for 365 days maturities and 0.50% less for all other maturities.

Wishing You Happy Investing.