RBI EASES REALTY EXPOSURE NORMS FOR LENDING TO SEZS

Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} The ReserveBank of India (RBI) has made it easier for banks to lend to special economiczones (SEZ). Several types of advances to projects in these zones have now beenexcluded from the definition of commercial real estate loans .    In a circularin 2006, the RBI had classified SEZs as commercial real estate, making itdifficult for companies involved in these projects to raise funds. Realestate loans areconsidered risky and categorised as part of exposure to sensitive sectors,which also include capital markets and commodities. There are also restrictionson foreign investment in real estate.    LB Singhal,director general, Export Promotion Council for EoUs and SEZs told ET: “We hadtaken up this issue with the ministries of finance and commerce. The matter wasput before the empowered group of ministers headed by finance minister PranabMukherjee, which had decided that SEZs should be treated as infrastructure.” Headded that with the RBI’s clarification, loans to those developing, operatingand maintaining SEZs, as well as setting up or acquiring units in SEZs will bepart of infrastructure lending . “This would enable domesticinstitutions and banks to make funds available to SEZs on the terms andconditions applicable for infrastructure lending,” he added.   In thecircular issued on Wednesday, RBI has sought to define a commercial real estateloan as one where the funds are used to acquire real estate and the repaymentof loans is out of proceeds of sale or rentals from the property. Bearing theseconditions in mind, RBI has sought to differentiate between loans which couldbe classified as commercial real estate exposures (CREs) and those whichwere not. RBI said there are projects where there are arrangements to insulatethe lease rentals from volatility in the real estate prices. This is done byinking long-term lease agreements that outlive the loan agreement and need notbe treated as CREs.   Courtesy:- ETdt:- 10-09-2009  

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