MUMBAI: The Reserve Bank of India (RBI) has made it easier for banks to lend to special economic zones (SEZ). Several types of advances to projects in special economic zones have now been excluded from the definition of commercial real estate loans.
Reference to SEZs as commercial real estate loans by RBI in a ’06 circular had made it difficult for those involved in these projects to raise funds. Real estate loans are considered risky and categorised as part of exposure to sensitive sectors which also include capital markets and commodities. There are also restriction on foreign investment in real estate.
Speaking to ET, LB Singhal, director general, Export Promotion Council for EoUs and SEZs said: “We had taken up this issue with the ministry of finance and the ministry of commerce. The matter was before the empowered group of ministers headed by finance minister Pranab Mukherjee, which had decided that
SEZ should be treated as infrastructure.”
He added that now with the central bank clarification, loans to those developing, operating and maintaining SEZs as well as setting up or acquiring units in SEZs will be part of infrastructure lending. “This would enable domestic institutions and banks to make funds available to SEZ sector on the terms and conditions which are applicable for infrastructure lending,” he added.
In the circular issued on Wednesday, RBI has sought to define a commercial real estate loan as one where the funds are used to acquire real estate and the repayment of the loans is out of proceeds of sale or rentals from the property. Bearing this conditions in mind, RBI has sought to differentiate between loans which could be classified as CRE exposures and those which were not.
In the context of SEZ, RBI said that there are projects where there are arrangements to insulate the lease rentals from volatility in the real estate prices. This is done by locking into long-term lease agreements that outlive the loan agreement need not be treated as commercial real estate exposures (CREs).
Source : The Ecoomic Times