Sunday, March 11, 2007

SEZ borrowers may be spared realty bite



NEW DELHI: The government will review RBI's recent decision to treat
bank financing of SEZ projects as exposure to commercial real estate.
Real estate projects attract higher interest rates than infrastructure

The Prime Minister's office (PMO) has directed the issue should be
placed before the empowered group of ministers (eGoM) on SEZs. This
follows a complaint by the commerce department that RBI's move sent
contrary signals to the world about the government's seriousness over
economic development in the country.

RBI had directed all banks in September last year to treat loans for
setting up SEZs or for acquiring units in SEZs at par with lending to
the real estate sector. RBI's move was apparently aimed at restricting
bank finance to SEZs.

Commerce & industry minister Kamal Nath had criticised the move saying
it was inconsistent with the approach towards SEZs. In a recent letter
to the PMO, the commerce minister pointed out that development of SEZs
amounted to infrastructure development and should not be treated on the
same footing as real estate development. He added that the move sent out
wrong signals about the government's seriousness towards economic

The eGoM on SEZs, headed by foreign minister Pranab Mukherjee, has been
asked to take a call on the situation. PMO will advise RBI accordingly.
The eGoM is expected to meet later this month to decide on the changes
to be made in the SEZ policy and put an end to the freeze on
notifications and fresh approvals.

Of the 173 SEZs with land in possession affected by the freeze, at least
50 have completed all formalities. There is pressure on the Centre from
developers, many of them foreign investors, to end the stalemate. Many
states, including Andhra Pradesh, Gujarat, Tamil Nadu and Karnataka,
have written to the PMO against the freeze.

The eGoM had stopped approvals for fresh notifications and approvals of
SEZs at its meeting on January 22 following allegations of land-grabbing
by developers and violent protests in West Bengal's Nandigram, where
Indonesian Salem group was to set up a chemicals SEZ.


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