Reserve Bank likely to ease SEZ lending norms

October 16, 2006	(1 votes, average: 4 out of 5)  Loading ...
Print This Story   Email This Story Subscribe Newsletter

The Reserve Bank of India (RBI) may review its decision to club lending to special economic zones (SEZs) with commercial real estate after the government unveils a revised policy.

An indication to this effect was provided by the RBI at recent meetings with bankers, who had sought clarifications on how should they treat lending to genuine infrastructure projects in SEZs, banking sources said.

The RBI is likely to prescribe a graded structure of risk weights for bank finance to SEZs. It may lower the risk weights for lending to infrastructure projects in SEZs to 75 or 100 per cent from 150 per cent applicable for commercial real estate exposures.

Recently, the RBI decided that the exposure of banks to entities setting up special economic zones or for acquisition of units in SEZs would be treated as exposure to commercial real estate sector. This entails 150 per cent risk weight for such loans.

A 100 per cent risk weight means banks have to allocate capital of Rs 9 for every Rs 100 lent and a risk weight of 150 per cent would translate into capital allocation of Rs 13.5 for every Rs 100 lent.

The RBI has hiked the risk weights on exposure to sensitive sectors to 150 per cent from 100 per cent in the last couple of monetary policy reviews. These included exposure to capital market, home loans above RS 20 lakh and commercial real estate.

Banks have been going slow on lending to SEZ following the stringent directions of the RBI. The central bank is of the view that most projects in the SEZ are primarily real estate development and is indirectly fuelling asset prices, which have reached the peak.

Source: http://www.business-standard.com/

News Published Under:   Special Economic Zones, Banking and Finance |