Next stage of reforms should allow lending against shares for land allocation: Report

New Delhi, June 10 The next stage of reforms in India demands a gradual withdrawal of lending restrictions to corporates for land, against shares and such, a report said on Tuesday.

Real estate, in aggregate, accounts for one-third of investment activity in the country, without access to low-cost funds for most developers.

"After RERA implementation, builders’ consolidation, and timely and transparent data availability, etc, the underwriting risk is no longer systemic or disproportionately higher than that for any other industrial project finance,” said the report by Emkay Global Financial Services.

Likewise, lending against shares is a critical need – especially as new-age companies have more intangible assets than hard physical collateral.

"It is about time that we start respecting market assessment of equity value as much as the due consideration we give to replacement cost of physical assets," the report noted.

"After a long time, we have in Sanjay Malhotra — current RBI Governor — an intellectual with a flair for data, and one who comes with a firm pro-growth ideology. And this is what sets him apart," the report noted.

The RBI monetary policy, through its actions and communication, marks a seismic shift – aimed at nudging the potential growth rate of the economy higher.

The actions taken last Friday should be viewed in the context of the current economic landscape, said the report.

Historically, policy rate moves in increments of 50bps reflect economic duress.

"The recent surprise cut in our opinion is a catch-up on an unusually restrictive policy in the last fiscal and resets the trajectory of economic growth higher. This action also reflects confidence in conducting the monetary policy to align with the domestic economic reality – a decoupling of monetary policy is a precursor to a decoupled economic growth," it noted.

The aggressive moves on the policy front have been calibrated with a change in stance, back to ‘neutral’ mode. The earlier switch to an accommodative stance was done only in the prior policy meeting.

While the official version is that under the present circumstances, there is limited space to lower rates further, a more practical reasoning is simply to wait out the usual 6-9 months of the transmission impact to play out, remain data-dependent, as well as firmly communicate the RBI's inflation fighting credentials – dovish actions completed with a mildly hawkish signalling, the report said.

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