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What is Statutory Liquidity Ratio (SLR) and Its Objectives?

Feb 17,2020 / By / No Comment
Reserve Bank of India (RBI)

RBI Monetary Policy 2020 – Updated Statutory Liquidity Ratio (SLR) Rates

Statutory Liquidity Ratio (SLR) is the govt term for the reserve demand that commercial banks are required to maintain in the form of cash, gold reserves, Reserve Bank of India (RBI) approved securities before giving credit to the customers. It is directed under Section 24 of the Banking Regulation Act, 1949. The SLR is determined by the RBI. It is usually used to control inflation and fuel growth, by increasing and decreasing the money supply. It controls the credit growth in India. The maximum limit of SLR is 40% and the minimum limit of SLR is 0 In India, the RBI always decides the percentage of SLR. If the bank fails to control the required level of the statutory liquidity ratio, then it becomes responsible to pay penalty to Reserve Bank of India (RBI). The current SLR rate in India is 18.25%.

When the SLR is high, banks have less money for commercial operations and hence less money to lend out. When this happens, home loan interest rates often rise. When the SLR is low, similarly, home loan interest rates are likely to fall.

How to calculate the Statutory Liquidity Ratio (SLR)?

SLR Rate = (liquid assets / (demand + time liabilities)) × 100%

What are the components of the Statutory Liquidity Ratio?

There are three major components of SLR:

Liquid Assets

These are assets one can easily convert into cash – gold, govt-approved securities, cash reserves, treasury bills, and government bonds.

Net Demand Liabilities

It is like your Current and Saving Bank accounts from which you can withdraw your money at any time.

Time Liabilities

It is like your Fixed Deposit Bank Accounts where you cannot immediately withdraw your money but have to wait for a certain period.

Where does SLR use?

The SLR is set for a number of purposes. A few uses of SLR are:

  • Controlling the expansion of bank credit by changing the level of SLR, the RBI can increase or decrease bank credit expansion.
  • Assuring the safety of commercial banks.
  • By decreasing the level of SLR, the RBI can increase liquidity with the commercial banks. As a result, it increases investment. This is done to fuel growth and demand.
  • Forcing the commercial banks to invest in government securities like government bonds.

What are the objectives of SLR?

Main objectives of SLR are :

  • To control the money supply in the economy.
  • Through SLR, the Central Bank forces the commercial banks to invest in government securities.
  • To support the RBI to assure the safety of a commercial bank.
  • To control the expansion of Bank Credits. RBI can increase or decrease bank credit expansion by changing the SLR rates.

Impact of SLR on the Investor

The Statutory Liquidity Ratio works as one of the reference rates when RBI has to decide the base rate. The base rate is nothing but the minimum lending rate. No bank can grant funds below this rate. This rate is fixed to assure clarity with respect to borrowing and lending in the credit market.

When RBI requires a reserve requirement, it assures that a specific portion of the deposits are safe and are always ready for customers to obtain.

What is Bank Rate, Repo Rate, Reserve Ratio, CRR, SLR?

Reserve Ratio:

Banks keep aside a certain percentage of cash reserves or RBI approved assets. There are two types of reserve ratios: 1) Cash Reserve Ratio and 2) Statutory Liquidity Ratio.

Cash Reserve Ratio (CRR):

It is the ratio of cash legitimate by RBI to be maintained by commercial banks upon its total deposits.

Statutory Liquidity Ratio (SLR):

It is the reserve needed to be managed by commercial banks in the form of liquid cash, gold reserves, and RBI approved securities before approving any credit to the customer.

Repo Rate:

It is the rate charged by RBI for repurchasing the government securities sold by domestic banks.

Bank Rate:

It is the rate at which RBI gives loans and advances to domestic banks.

What is the difference between the repo rate and reverse repo rate?

Repo rate is the rate at which banks borrow money from RBI. Whereas, the reverse repo rate is the rate of interest at which RBI borrows money from commercial banks.

What is the current repo rate?

The current repo rate in India is 5.15%, effective from 06th Feb 20.

How does the repo rate work?

RBI buys government securities from commercial banks at a discounted price. The rate at which it is discounted is the repo rate. After the granted tenure, the respective commercial bank repurchase those government securities from RBI.

How does the repo rate affect the economy?

The change of repo rate is intended to affect the movement of money in the economy. An increase in repo rate decreases the flow of money in the economy, while the decrease in repo rate increases the flow of money in the economy.

What is Reserve Repo Rate?

The rate at which RBI provides interest to banks for depositing funds is called the reserve repo rate. The reserve repo rate at which the RBI borrows money from the banks, instead of lending money to them. The current reverse repo rate is 4.90%.

RBI Monetary Policy Rate

The key indicators of RBI Monetary Policy along with their current rates in the table given below:

CRR

SLR

Repo Rate

Reserve Repo Rate

Marginal Standing Facility rate

Bank Rate

4%

18.25%

5.15%

4.90%

5.40%

5.40%

Lending / Deposit  Rates:

Base Rate

MCLR

Saving Deposit Rate

Term Deposit Rate > 1 year

8.45% – 9.40%

7.50% – 7.95%

3.25% – 3.50%

6.00% – 6.40%
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Affordable Housing blog Indian real estate round-up 2019 Real Estate Smart Residential Living

Real Estate Round-up 2019: How India’s Real Estate Sector has Performed in Year 2019?

Jan 20,2020 / By / No Comment
Indian Real estate round-up 2019

Indian Real Estate 2019 Round Off

Real Estate is one of the key driving factors behind the growth of the Indian Economy and plays a pivotal role in the nation’s GDP growth. It is among the most recognized sectors globally. It creates millions of direct and indirect employment opportunities and supports the country’s development. It consists of 4 sub-sectors – Housing, Commercial, Retail, and Hospitality. The growth of this sector is well complemented by the growth of the corporate sector and the demand for office space as well as urban and semi-urban houses. The real estate sector of India ranks 3rd among the 14 major sectors that have a direct and indirect impact on all sectors of the economy.

The year 2019 has been a period of ups and downs for the Indian Real Estate Sector. There have been various policy and taxation related announcements in the last year. The market experienced the impact of the ongoing Non-Banking Financial Company (NBFC) crisis which resulted in a liquidity crisis and a slow pace of recovery in sales. On the other hand, the successful launch of India’s first Real Estate Investment Trust (REIT) opened new avenues for investments in real estate while multiple government SOPs provided much relief to the housing sector.

Post the policy reforms of 2017 such as demonetization, RERA, and GST, the residential market is absorbing the impact of these changes and is on the path to recovery. India continues to retain its position as the world’s fastest major growing economy on the back of improved investor confidence and better policy reforms.

The growth of the Indian Real Estate Market in 2019 has been driven by numerous factors including technology, improved ease of doing business, dust settling post the implementation of reforms such as GST and RERA, and demand-supply dynamics, among others.

It is also expected that the real estate sector will incur more and more NRI Investments in both the short and long term.

In the year 2019, the realty sector has experienced its highs and lows. Affordable Housing performed beyond expectations within the residential segment, while the luxury apartments continued to witness subdued sales. On the other hand, the commercial segment saw most of the investment flowing in as the year comes to an end. Whereas, other asset classes such as warehousing, Coworking, and Co-living gained momentum.

Initiatives are taken By The Government

If we look back at 2019, we can not deny that the government did not make sincere efforts to strengthen the sector. A series of reforms and policy changes were adopted. Some of them are:

  • Reducing GST rates to 1% for affordable homes and 5% for under-construction flats/apartments
  • The announcements about NHB raising liquidity to the housing finance companies
  • Relaxation of External Commercial Borrowing (ECB) funds
  • Creation of Alternative Investment Fund of Rs 25,000 crore for Stalled Housing Projects
  • Successive Repo Rate cut coming to 9-years low (total 135 basis points in 2019)
  • Tax holiday to first time home buyers
  • Relaxation in FDI norms for a single brand retail
  • The government slashed the corporate tax rate to 25.17% from 30% for existing companies, and to 15% from 25% for new manufacturing companies.
  • In 2019, consolidation continued in the residential segment. Those developers who are either on the verge of insolvency or have their project stalled continued to re-enter the market through joint development, or mergers.
  • Technological advancement in real estate too increased in the last year.

Post-2017 reforms such as Real Estate (Development & Regulation) Act (RERA), the inventory pile-up kept increasing across markets. New launches had taken a hit. Increasing unsold inventory became a cause of concern as liquidity challenges coupled with RERA deadlines made it tougher to deliver the project. In spite of the odds, those with deep pockets or leading names in the realty sector continued to outperform in 2019.

Since the start of this calendar year, there is a decrease in unsold inventory, which is a positive sign for the industry’s revival. In 2020, this is likely to reduce further to healthy levels. Another crucial factor for improved sales was largely stagnant property prices. Going forward, we may witness investors, funds, and lenders showing confidence to finance future projects. If employment levels improve and inflation kept under check, the revival of the sector isn’t distant. The year 2020 may well be the turnaround year.

Market Size

The real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13% of the country’s GDP by 2025. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs.

Housing Sector

As per the CBRE report, it is expected that out of the 2.3 lakh new unit launches in 2019 in the top 7 cities, nearly 40% or approximately 92,000 units were in the affordable segment, followed by mid-segment with a 33% share. The luxury and ultra-luxury segments amounted to the least share with 10% (approximately 23,000 new units). Apart from that, Center Approves 3.31 Lakh More Houses Under PMAY(U) to fulfill the housing needs of the Urban poorer.

  • Housing sales in 2019 saw a modest 4-5% annual growth with over 2.58 lakh homes sold during the year.
  • New housing launches in 2019 saw an 18-20% annual growth with over 2.3 lakh units.

Commercial Sector

As per the CBRE report, office leasing increased by more than 30% annually to cross 47 million sq.ft. during the first three quarters of 2019, exceeding its previous high of 2018. The leasing exercise reached about 15.4 million sq.ft. during Q3 2019, rising by nearly 23% on an annual basis.

Commercial office space continued to be the most sought-after asset class.

Forecast

Since the start of the year 2020, there is a drop in unsold inventory, which is a positive sign for the industry’s recovery. And it will probably see a growing trend in 2020. We expect the hurdles in the real estate sector to get resolved. Stagnant property prices was another factor for improved sales. Going ahead, we may clearly see investors, funds, and lending houses showing confidence to finance future projects. If employment levels improve and inflation remained under control, the recovery of the sector is not very far.

 

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FM Nirmala Sitharaman Announced Rs 70,000 Stressed Assets Fund To Lift Exports and Real Estate Growth

Sep 16,2019 / By / No Comment
Finance Minister Nirmala Sitharaman

HIGHLIGHTS

  • Finance Minister announced a stressed asset fund of Rs 20,000 crore for housing projects.
  • A new plan for repayment of taxes paid on exports worth Rs 50,000 crore.
  • Rs 1,700 crore dispensation for giving higher insurance cover to exporters.
  • She also announced a Dubai-like mega shopping festival to boost exports.

Last week, Finance Minister Nirmala Sitharaman announced an over Rs 70,000 crore package for lifting the export and the real estate sector growth, including establishing a stressed asset fund. These measures came at a time when the economy of India is struggling with a 6-years slow growth rate and hoping that these measures will give support to the Indian economy in the year to come.

The package comprises a stressed asset fund of Rs 20,000 crore for housing projects, a new plan for repayment of taxes paid on exports worth Rs 50,000 crore and Rs 1,700 crore dispensation for giving higher insurance cover to exporters.

Apart from the announcement of Rs 70,000 crore, the Finance Minister has also addressed issues in the 2-critical sectors that are facing distress i.e. exports and the real estate sector.

A Rs 20,000 crore fund for the real estate sector with half of the money coming from the government. It will be established to give last-phase funding for housing projects that are not in bankruptcy court or already earmarked as bad debt.

FM Nirmala Sitharaman

At a press conference called to announce the 3rd and final set of measures to discuss in particular sectors and support growth, housing finance companies have been permitted to borrow funds from overseas investors at easy rules while interest rate on housing building advance has been reduced. It will directly benefit Govt servants. Government servants contribute to a major segment of demand for houses. To encourage more government servants to buy new houses, the FM announced the reducing of House Building Advance which will now be combined to the 10-year G-sec yield.

The stressed asset fund, which is to be used to give Rs 10,000 funding to affordable housing projects, will serve and benefit almost 3.5 lakh homebuyers. This aid will benefit buyers stuck in bankruptcy-bound projects will get assistance through the NCLT route.

New Steps That Will Boost Housing Industry

  • Relaxation of ECB guidelines for Affordable Housing
  • ECB guidelines will be relaxed to facilitate the financing of home buyers who are eligible for Pradhan Mantri Awas Yojana (PMAY) in consultation with Reserve Bank of India (RBI).
  • This is an addition to the existing norms for External Commercial Borrowing (ECB).

House Building Advance

  • The interest rate on House Building Advance shall be reduced and linked with the 10-years G Sec Yields.
  • Government servants contribute to a major component of demand for houses. This will encourage more government servants to buy new houses.

Special Window for affordable and middle-income housing categories

  • A special window to provide last mile funding for housing projects which are non-NPA and non-NCLT projects and are net worth positive in the affordable housing and middle-income category to be set up.
  • The objective is to focus on the construction of unfinished units.
  • Govt of India on the lines of NIIF can contribute to the fund while the rest of investors would be LIC, Banks and sovereign funds.
  • The fund shall be set-up as a Category-II AIF Trust and would be professionally run with experts from the Housing and Banking Sector.
  • Fund Size – Rs 10,000 crore to be contributed by the Government of India and the roughly same amount from overseas investors.

For exporters, a new scheme for repayment of taxes paid on exports called the Remission of Duties or Taxes on Export Product (RoDTEP), will come into effect from January 2020 to replace current laws. The new RoDTEP scheme will more than enough to encourage exporters than existing schemes bring together. Moreover, a Rs 1,700 crore yearly dispensation will provide Export Credit Guarantee Corp (ECGC) to grant higher insurance cover to banks lending working capital for exports. This will allow a decrease in the overall cost of export credit including interest rate, especially for MSMEs.

Exports have also declined in the last two months in spite of a weaker rupee, while 2016 demonetization of 86% of the currency in circulation and introduction of Goods and Service Tax (GST) had sunken the realty market.

She also announced a mega shopping festival similar to the world-famous Dubai Shopping Festival, which will be conducted at 4-places in India in March on issues of gems and jewelry, handicraft/yoga/tourism, textiles, and leather.

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Incentives To GIFT City in Union Budget 2019 Could Encourage Financial Activities

Jul 13,2019 / By / No Comment
Gift_City

Incentives To GIFT City in Union Budget 2019 Could Encourage Financial Activities

 

Overview:

Gift City, located in the north on the banks of river Sabarmati and is a financial Central Business District between Ahmedabad and Gandhinagar in Gujarat. Gift City (Gujarat International Finance Tec-City) is a business district developed by the Govt. of Gujarat through a joint venture company. It is India’s first operational smart city and International Finance Service Centre is our PM Narendra Modi’s dream to create a financial hub like Singapore or Hong Kong in his home state. The idea for GIFT City was developed during the Vibrant Gujarat Global Investor Summit 2007. East China Architectural Design & Research Institute and Fairwood Consultants India were chosen for the planning of the city. 3 phases of 4 years each is planned for the development of the project. On the other hand, GIFTCL planned to develop an area of 85 million sq ft. to make sure that the city has its world-class facilities for connectivity, technology, communication, societal services, etc. for an upgraded living and work experience. The city is strategically located and well connected to the cities of Ahmedabad and Gujarat which is located at a distance of 26.6 km and 11.2 km respectively via Gandhinagar-Ahmedabad Road and Gujarat SH 71. Features of this project include an underground utility tunnel, a district cooling system, and automated vacuum waste collection. Many of these features are being introduced in India for the first time. Shah Pur, Lavarpur, Ratanpur, Pirojpur, Raysan Valad, Mahavirpuram are its neighbouring localities.

India’s only International Financial Service Centre (IFSC), at GIFT City, Gandhinagar, is one of the most challenging efforts of the Government for making foreign financial transactions to the Indian region. At present, financial sector performers such as banks, insurance companies, insurance brokers, stock exchanges, depositories, mutual funds, alternative investment funds (AIFs), and other SEBI-registered agents are allowed to establish shop at IFSC. Over the past few years, the Government has shifted its minds consistently towards it to make a commercial function for global financial professionals to relocate their operations to IFSC. It will be important to justify the taxation structure in IFSC so that it balances the tax structure in other global financial markets.

In February, the NDA government had presented in Rajya Sabha the International Financial Services Centres Authority Bill, 2019. The Bill plans for the establishment of an authority to support and control the financial services market in the International Financial Services Centres business in Special Economic Zones in India.

 

GIFT CITY IFSC Project Status:

GIFT One Tower in DTA, GIFT Two Tower in DTA, Jamnabai Narsee International School in DTA, TCS Tier 4 Data Centre in DTA, Hiranandani Signature Tower IN IFSC, Aspire One & Two – Incubation Centre in IFSC, Domestic Tariff Area, International Finance Service Centre (Finance & IT/SEZ) are completed and operational.

World Trade Center GIFT City – 4 towers under construction, Janaadhar Mangala, Brigade Tower in IFSC, Brigade IBIS Styles Hotel in DTA, Gift International Center, Savvy ATS tower in IFSC are all under-construction and full pace.

 

Gift City Features:

All the electricity cables will be underground and its power grid will be designed by ABB Groups of Switzerland.

Gas supply to the city will be provided by the existing gas Network of GSPL for gas transmission pipelines.

The cooling system will be provided by District Cooling System in GIFT City which will reduce the operational cost by 30-40% and avoids the capital cost of implementing coolers in each building.

All waste of the city will be treated through plasma gasification which will be automatically sucked through underground pipes.

 

Proposed and Planned Infra under GIFT City:

There is a plan to run a multimodal mix of the transport systems such as MRTS/LRTS/BRTS, etc for both intercity transport (to Ahmedabad, Airport, and Gandhinagar) and Intra-city transport.

They are also a plan to use Walk-to-walk concept between private and public transport.

GIFT City will have its own metro stations.

There is also a design for the use of electric personal rapid transport system in the city.

 

Look at how tax SOPs in the budget 2019 will offer impetus to Indian IFSC at GIFT City:

Union Budget 2019 introduced by Hon’ble Finance Minister Nirmala Sithraman unfolded floodgates of incentives for India’s first IFSC known as Hiranandani Signature located at GIFT city, Gandhinagar, Gujarat. With a view to improving infrastructure and development of a world-class financial hub, some tax benefits have already been given to various businesses operated out of IFSC like Banking and Financial Services, Insurance and Reassurance etc. The Union budget 2019 revealed plenty of extra tax SOPs with an aim to produce a positive environment for Indian as well as global financial service professionals to work from Indian IFSC. The idea is to give much-required incentive to the Indian International Financial Service Centre as a flourishing financial hub competing with the global members like London, Dubai, Singapore etc.

 IFSC international business is around $56 billion holding around $22 billion by the banking and $30 billion by insurance units. Over the next few years, GIFT IFSC alone could add $1 trillion to Indian industry and infrastructure and support to reach the $5-trillion GDP target over the next few years. To reach this challenging target, the Finance Minister awarded lucrative tax relief and a holiday which will bring more competing businesses to be operational at GIFT IFSC.

In her budget speech, Nirmala Sitharaman said that the government will trigger the execution of appropriate law to form an International Financial Services Centre (IFSC) authority that will define an up-to-date regulatory architecture for such world-class financial hubs and government is bound to put all required regulations and infrastructure in place to develop IFSC.

The government has proposed to provide several direct tax incentives to an IFSC. This would include extending income tax waiver of up to 10 years from 5 years, 100% profit-linked deduction under section-80LA in any 10-year block within a 15-year period, exemption from dividend distribution tax from current and accumulated income to companies and mutual funds, exemptions on capital gains to Category-III AIF and interest payment on the loan is taken from non-residents.

Apart from tax aspects, the major challenge includes fixing the uncertainties in the regulatory structure for IFSC and increasing the expertise of doing business. It is expected that these financial year incentives, guided by the establishment of a consolidated financial controller, will definitely contribute the much-needed push for IFSC to become a success in India.

Image Sources: Google

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