RBI's policy surprise: Pause on rate cuts may hit real estate, auto sectors

Real estate developers were expecting a rate cut of 50 to 100 basis points.

Business Standard : The Reserve Bank of India’s (RBI’s) move to pause rate cuts will hit the beleaguered real estate and auto sectors hard. These sectors were expecting another rate cut by the central bank to help revive sagging consumer demand.

CEOs said benefits from the previous rate cuts are yet to play out completely and the real estate industry is still reeling from the liquidity crisis as consumers are not coming forward to buy new houses or cars.

Real estate developers were expecting a rate cut of 50 to 100 basis points which would have provided a boost to the government’s recent initiatives to rev up the economy.

“One-time roll over to restructure bad loans would have been a logical step across industries. Thus, the decision to wait and watch the outplay of the previous cuts will go against the current sentiments,” said Niranjan Hiranandani, MD of real estate firm Hiranandani Constructions.

A rate cut would have helped the balance sheets of builders, which are defaulting on bank loans as customers are not booking under-construction flats as they fear the developer won’t be able to complete the project in time. Several builders like Peninsula Land in Mumbai have failed to repay bank loans. Customers are not booking new homes even though builders have reduced prices of their under-construction flats by 20 per cent in Mumbai.

“Customers don't want to take any risk with an under-construction project which, in turn, has stopped the cash flow to builders,” said a Mumbai-based developer. The automobile companies said a further cut in the interest rates would have helped them sell cars to fence-sitters, who are waiting for a better deal. India’s largest carmaker Maruti Suzuki’s domestic sales fell 1.6 per cent year-on-year in November. Other carmakers, too, reported fewer sales.

“With the RBI cutting the GDP growth forecast by a whopping 170 basis points, the industry is again staring at an uncertain future,” said a luxury auto dealer in Mumbai.

At the same time, a rate cut would have helped banks and NBFCs (non-banking finance companies) to revive their sagging credit growth. Sale of new home loans and auto loans from NBFCs have slowed down after the DHFL scam came to light. 

The retail loan growth rate had slowed to 7.3 per cent in the first half of 2019 -- slowest growth in the last five years. On the other hand, personal loan growth accelerated to 17.2 per cent in October 2019, from 16.8 per cent in October 2018, the RBI data showed.

SBI tightens lending terms for auto dealers as sector sees downturn: Source

As part of the revised terms, the country's largest bank by assets has decided to halt lending to dealers of Hyundai Motor India unless they provide a minimum of 25% collateral.

State Bank of India (SBI) has tightened lending terms dramatically for auto dealerships, according to a source and an internal memo seen by Reuters, seeking to reduce its exposure to risk from a sector in the midst of a sharp downturn.

The shadow banking crisis that began to unfold in India during mid-2018 has deepened this year. The liquidity crunch in non-bank financing, higher insurance costs and rises in taxation have served to increase the pressure on the car sector, with monthly auto sales falling by 17-20 per cent since April.

Monthly passenger vehicle sales in June fell by the biggest margin in 18 years.

In one internal memo for financing dealers selling vehicles made by Hyundai Motor Co's India unit, SBI said it is revising the lending terms because of "growing stress" in the carmaker's portfolio.

Similar memos have been sent to dealerships for all other brands, said a senior SBI official aware of the matter, though Reuters has not seen memos relating to other carmakers.

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As part of the revised terms, the country's largest bank by assets has decided to halt lending to dealers of Hyundai Motor India unless they provide a minimum of 25 per cent collateral, it said in the memo.

Hyundai dealers that had already received loans from the bank will also have to provide security of between 25 per cent and 50 per cent of the loan amount, SBI said in the memo dated March 27 and signed by the chief general manager for supply chain financing.

Hyundai did not immediately reply to an email seeking comment outside business hours.

The company is India's second-largest carmaker with more than 16 per cent of a market accounting for 3.3 million passenger vehicles in the year to March 31.

Business Standard

Tesla launches new $45,000 version of Model 3 sedan with mid-range battery

Although Tesla has promised a base-level version of the Model 3 priced at $35,000, so far it has only produced higher-cost versions.

Tesla Inc on Thursday introduced a new $45,000 version of its Model 3 sedan on its website, launching the car as U.S. tax breaks for Tesla cars are about to decrease.

According to the website, the rear-wheel-drive model has a "mid range" battery, a range of 260 miles, 50 miles less than the long-range battery that the more expensive Model 3 is equipped with.

The new version has a delivery period of six to 10 weeks, according to the website, which would customers eligible for the current $7,500 U.S. tax credit if they take delivery by the end of the year. The tax credit for Tesla cars will drop by half on Jan. 1.

Although Tesla has promised a base-level version of the Model 3 priced at $35,000, so far it has only produced higher-cost versions starting at about $49,000.

Tesla has said that it would not manufacture the base-level version of the Model 3 this year.

Adding the mid-priced version of the Model 3 appears to be a strategic way to lure possible buyers who had been waiting for the lower-priced version.

It is not clear how many of the more than 400,000 reservations for the Model 3 are for the base models.

Business Standard