The Hindu Business Line : RBI move to curb bank lending to SEZs

In a move to restrict bank finance to Special Economic Zones (SEZ), the Reserve Bank of India on Wednesday decided to treat bank loans for setting up SEZs and for acquisition of units in SEZ as banks' exposure to the commercial real estate sector with immediate effect.

This means banks have to make additional provision for their lending for the setting up of SEZs and also for buying units in such zones.

The RBI in its annual credit policy in April this year had increased risk weight on bank exposure to commercial real estates by 25 per cent to 150 per cent. This means that banks have to set apart more capital in their books as cover to maintain their existing level of lending to the real estate sector.

In its latest annual report, the RBI had cautioned that SEZs could lead to uneven development by pulling out resources from less developed areas. While allowing the proliferation of SEZs, the RBI cautioned the revenue implications of taxation benefits should be taken into account. "The revenue loss for the Government in providing incentives may be justified only if the SEZ units ensured forward and backward linkages with the domestic economy."

The central bank has been cautioning banks to tread cautiously while lending to the real estate sector. In March this year, the RBI had directed banks to ensure that borrower had obtained all government clearances before disbursing the loans. This direction was made in the light of the substantial increase in lending by banks to the real estate sector during the last few years.

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