In a bid to ease capital constraints, the Reserve Bank of India (RBI) issued instructions for long-term bonds for infrastructure financing yesterday evening. These long-term bonds are typically issued by banks for infra debt. According to the RBI circular, the central bank intends to ease raising long-term funds by banks for infrastructure. There will also be infrastructure status for affordable housing projects.
According to Neeraj Bansal, Partner and Head of Real Estate and Construction, KPMG in India, the step taken by Reserve Bank of India (RBI) is a positive step towards improving liquidity and reducing cost of funds for infrastructure sector.
“The recent move by RBI is a welcome move as it would help stimulate demand for housing and make houses affordable to some extent. The move is expected to reduce Equated Monthly Instalment (EMI) of a home loan borrower by 8-10%, which coupled with recent income tax incentives have the potential to boost annual savings of an individual to the tune of Rs1 lakh,” opines Bansal.
Currently, housing loans below Rs20 lakh have lower interest rates as they fall into priority sector lending. With this step, loans up to Rs50 lakh in 6 metropolitan cities (housing costing up to Rs65 lakh) and Rs40 lakh in other cities (housing costing up to Rs50 lakh) — a major chunk of housing demand — are set to get cheaper.
The move is also expected to reduce cost of funds to infrastructure sector by 100-200 bps as banks would no longer need to meet regulatory requirements of maintaining require cash reserve ratio (CRR), statutory reserve ratio (SLR) and priority sector lending (PSL) on funds raised for infrastructure and housing sector, adds Bansal.

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