28 october 2006

rbi may revise norms for sez funding
mumbai: the reserve bank of india is expected to review its directive to commercial banks last month to treat loans to sez on par with real estate projects. under the directive, banks were required to treat exposures to sez projects as lending to commercial real estate.

following this, commerce minister kamal nath had taken up this issue with prime minister manmohan singh.

earlier this month, the rbi had accepted the inclusion of sezs as infrastructure projects that would enable them to avail priority sector lending. rbi may now prescribe a graded structure of risk weights for bank finance to sezs with lower risk weights for infrastructure projects located inside sezs.

the commerce ministry and sez developers argue that the rbi's decision would substantially reduce bank funding for sez projects. it would also lead to a rise in interest rates for sezs, as commercial real estate has a higher risk weight and requires higher provisioning by banks.