As stress in the global commercial real estate industry can lead to liquidity squeezes, banks may become targets for short sellers, Reserve Bank of India Governor Shaktikanta Das said on Monday.
Speaking at the Future of Finance Forum 2024 in Singapore, which was hosted by the Bretton Woods Committee, Das stressed that tension in the global commercial real estate (CRE) market should be properly monitored.
Because of the comparatively high CRE coverage ratios in their loan books, banks show strong sensitivity to both expected and unexpected CRE losses. In addition, banks with significant CRE exposures may experience liquidity constraints as a result of short sellers targeting them and a further decline in investor confidence, the RBI governor stated in reference to the dangers to global financial stability.
He emphasized that in order to reduce the risks to bank balance sheets and systemic stability, regulators need to be vigilant and implement proactive, forward-thinking regulatory actions ahead of the curve.
The International Monetary Fund reports that real estate prices declined by 12% worldwide over the previous year, and the industry is still susceptible to increased financing costs and increasing vacancy rates.
As of June 28, 2024, bank loans to the Indian commercial real estate sector stood at 22.8%, or Rs 4.21 trillion. Compared to non-food credit, which increased by 13.9%, this was more. The impact of the HDFC and HDFC Bank merger, which went into effect on July 1, 2023, is not included in the numbers.
Speaking on inflation in the Indian context, he said that even if inflation is declining, the central bank is not in a haste to lower interest rates.
“We still have a ways to go and cannot afford to look the other way, but inflation has moderated from its peak of 7.8% in April 2022 into the tolerance band of +/- 2% around the target of 4%,” he stated.
Two consecutive months, July and August, saw retail inflation fall short of the RBI’s objective of 4%, which serves as the primary benchmark for policy decisions.
Data released on Thursday indicated that India’s inflation increased little to 3.65% in August from a revised 3.6% in July. Despite a modest increase in food inflation, prices were kept in check because to a favorable base from the previous year. For the eleventh consecutive month, headline inflation remained below the Reserve Bank of India’s upper tolerance ceiling of 6%.
According to Reserve Bank predictions, inflation is expected to decline further, from 5.4% in 2023–2024 to 4.5% in 2024–2025 and 4.1% in 2025–2026, Das stated.
The policy repo rate was raised by 250 basis points (bps) between May 2022 and February 2023. The central bank has remained at this rate ever since. The dates of the upcoming policy review meeting are October 7-9.
According to Das, the Indian economy recovered from the COVID-19 pandemic’s harsh downturn and saw real GDP growth of more than 8% on average between 2021 and 2024.
The Reserve Bank of India (RBI) forecasts 7.2% real GDP growth for 2024–2025; risks are evenly distributed around this estimate.
He added that the growth trajectory is backed by a climate of macroeconomic and financial stability. “This growth outlook reflects the underlying strength of India’s macro-fundamentals, with domestic drivers – private consumption and investment – playing a major role,” he said.