Charging interest goes against logic of loan EMI moratorium: CREDAI, Mumbai Grahak Panchayat

Mumbai: In an interesting development, homebuyers and realty developers are supporting each other for the first time in raising concerns over interest levied for the moratorium period offered by banks on term loans including housing loans.

With the banks still asking for interest payments from developers despite a 6-month moratorium recently announced by the Reserve Bank of India (RBI), realty developers' body CREDAI and consumers' association Mumbai Grahak Panchayat believe that this goes against the intention and logic of providing any relief in the form of a moratorium.

"We are primarily against the interest being charged on installments, which also includes interest. This will affect consumers adversely at a time when they are already facing financial difficulties," said Shirish Deshpande, Chairman of Mumbai Grahak Panchayat.

He suggested that the interest on moratorium period needs to be waived fully to allow homebuyers gain actual benefit of the government support.

While the central bank has granted a total 6 months' moratorium for all term loans, the borrower is expected to pay additional interest for this period and that, according to homebuyers and developers, is unlikely to ease financial pressure.

"At a time when the entire economy is in crisis, banks need to take a long-term view and be supportive to an industry that contributes 6% of GDP and is major employer. Banks need to follow RBI’s direction on moratorium in spirit and charge a reasonable level of interest at sub 8%," said Boman Irani, Vice President, CREDAI National.

Given the backdrop of Covid-19 crisis, the central bank has already announced various measures to infuse liquidity in the system.

However, the real estate sector has not been able to leverage the benefits of this reduction in repo rates.

A major restricting factor for the same, according to CREDAI, is that despite the RBI's 2.5% reduction in repo rate since January 2019, the maximum reduction passed on by the bank to the borrowers is between 0.7-1.3% largely from August 2019 till date, and in some case the benefit has not been passed at all.

Real estate industry is still getting to finance at much higher rates, therefore, provision of appropriate directions to the banks for percolating the benefits of the rate cuts to the Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) need to be made, developers said.

Kailash Babar, ET Bureau, Mumbai

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