There is substantial liquidity in the market, evident from the fact that the money supply was dangerously high at 20.8 per cent and any containment will require some drastic belt-tightening.
K V Kamath, managing director of ICICI Bank, which accounts for a sizeable percentage of home loans, fears further tightening as the apex bank tries to achieve the medium term inflation target of 4-4.5 per cent.
The bank will continue to watch credit growth as it still continues to be robust, he said. J&K Bank chairman and chief executive Haseeb A Drabu said that between the lines it was a strong monetary policy and there could be further tightening in the next few months.
"There is a threat of further tightening as the Reserve Bank proposes to restrict money supply to 17-17.5 per cent and keeping inflation in the range of 4-4.5 per cent," he said.
On the Reserve Bank's decision to cut risk provisioning on home loans, Drabu said it was possibly led by "societal reactions" as the RBI was being seen as a villain for raising interest rates.
Public sector banks, however, welcomed the cut in risk provisioning as it would improve their margins with about 80 per cent of their home loans being sub-Rs 10 lakh. But the Reserve Bank has made it clear that reduction in provisioning is only "temporary" and it may not last beyond one year.
"It is good news for people and RBI is encouraging bankers to do housing loans," Bank of Baroda chairman and managing director Anil K Khandelwal said.
Though interest rates on home loans were not likely to come down, they will not increase further, he said.
The policy implications would be good for the banks as the stress is on healthy balance of growth and inflation. Indian Overseas Bank chairman and managing director T S Narayanasamy said it was a very comfortable policy.
Risk weightage, which has been reduced for housing loan up to Rs 20 lakh and also for loan against gold and jewellery are good features. It will benefit the poor people, he added.
Gunit Chaddha of Deutsche Bank said the policy puts a pause on interest rate hike and is very progressive. The actions of interest rate measures is a sign that the financial market are calmer and RBI showed lot of pragmatism, he added.
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