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RBI Curb On Bank Loans to SEZs May Be Eased


RBI Curb On Bank Loans to SEZs May Be Eased

Last updated: April 17 2007
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  • RBI Curb On Bank Loans to SEZs May Be Eased

    With the tightening of the SEZ rules by the empowered group of ministers (EGoM) on April 5, it would now be possible to persuade the Reserve Bank of India (RBI) to take a fresh look at its directives on bank lending to SEZs.

    Even before the EGoM prescribed the ceiling of 5,000 hectares on the size of multi-product SEZs and a uniform standard on the utilisation of a minimum 50% of the area for core industrial activities, the commerce ministry had been pressing for easing of the RBI directive stipulating that all loans for setting up SEZs will be treated in the same manner as exposure to commercial real estate.

    The ministry had argued that the purpose of developing SEZs was to create world class infrastructure aimed at attracting investments and boosting economic activities and, as such, SEZs developers should not be put at a disadvantage in availing bank loans. While the argument did not cut ice in the past amid widespread concern that the setting up of SEZs amounted mostly to real estate development, commerce ministry officials are now hopeful that the RBI would take the changed SEZ rules into consideration.

    "It is in the exclusive domain of the RBI to make changes in the provisioning norms applicable on bank loans to the various sectors. The EGoM, therefore, could not have taken a decision in this regard," an official explained. "But the EGoM has now changed the SEZ rules restricting the real estate activities that can be undertaken within each zone. There is, thus, a strong case now for the RBI to lift the curbs on loans," he said.

    The RBI directive requires the banks to make higher provision of 100 basis points for loans to SEZs instead of 40 basis points for standard loans. It also prescribes a higher risk weightage of 150% for loans to SEZs as against 100% for standard loans.

    The notifications for 83 of the 234 SEZ proposals which have been formally approved are expected to be issued shortly. There are another 162 proposals which have received "in principle" approval and some 360 new applications are pending before the BoA.
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