Treat bank loans to develop SEZ as CRE lending: RBI
The Financial Express, July 10, 2009, Page 13
Press Trust of India, Mumbai
The Reserve Bank has proposed continuing with the norm of treating bank loans given for acquisition of land for developing SEZs as commercial real estate lending, a suggestion opposed by developers who believe this makes credit costlier.
"These exposures would be classified as CRE exposures," RBI said in its revised draft guidelines on commercial real estate exposures, comments on which is sought by July 15.
Banks have to keep more capital aside while lending to commercial real estates (CRE), which make such loans costlier. However, the central bank also proposed to make lending to develop Special Economic Zones (SEZs) as infrastructure loans, which would make the credit to these zones speedier.
Raheja Developers MD Naveen Raheja said, these two guidelines proposed that lending to SEZ developers would not be stalled as these are infrastructure loans, but it would be expensive because they are also CRE loans. He said the lending to SEZ developers falls in the range of 13.6-16.5% interest rates, and the RBI proposal does not make these projects viable anymore.
Raheja said if the CRE status to these lending is withdrawn, interest rates could dip by two percentage points.
RBI also proposed that loans for acquiring units in SEZ be treated as non-CRE lending, a suggestion which is different from its earlier decision in 2006 that sparked protests from SEZ players.
RBI had included these loans in CRE exposures in 2006 in order to prevent speculative dealings in such units.
"Since there are restrictions on transfer of such (SEZ) units and require Government permission, the speculative activity in sale and re-sale of units is unlikely to be there.
"Therefore, such cases should be more like financing of industrial units or the projects and if such is the case, these may not be treated as CRE Exposures," RBI said in its draft guidelines.
RBI also proposed to treat lending to industrial units in SEZs for buying plant and machinery as non-CRE.
Director General, Export Promotion Council for EOUs & SEZs LB Singhal termed the RBI draft guidelines as progressive proposals.
He said treating loans for acquiring land for developing SEZs as non-CRE lending was also part of E-GOM proposal itself.
The Financial Express, July 10, 2009, Page 13
Press Trust of India, Mumbai
The Reserve Bank has proposed continuing with the norm of treating bank loans given for acquisition of land for developing SEZs as commercial real estate lending, a suggestion opposed by developers who believe this makes credit costlier.
"These exposures would be classified as CRE exposures," RBI said in its revised draft guidelines on commercial real estate exposures, comments on which is sought by July 15.
Banks have to keep more capital aside while lending to commercial real estates (CRE), which make such loans costlier. However, the central bank also proposed to make lending to develop Special Economic Zones (SEZs) as infrastructure loans, which would make the credit to these zones speedier.
Raheja Developers MD Naveen Raheja said, these two guidelines proposed that lending to SEZ developers would not be stalled as these are infrastructure loans, but it would be expensive because they are also CRE loans. He said the lending to SEZ developers falls in the range of 13.6-16.5% interest rates, and the RBI proposal does not make these projects viable anymore.
Raheja said if the CRE status to these lending is withdrawn, interest rates could dip by two percentage points.
RBI also proposed that loans for acquiring units in SEZ be treated as non-CRE lending, a suggestion which is different from its earlier decision in 2006 that sparked protests from SEZ players.
RBI had included these loans in CRE exposures in 2006 in order to prevent speculative dealings in such units.
"Since there are restrictions on transfer of such (SEZ) units and require Government permission, the speculative activity in sale and re-sale of units is unlikely to be there.
"Therefore, such cases should be more like financing of industrial units or the projects and if such is the case, these may not be treated as CRE Exposures," RBI said in its draft guidelines.
RBI also proposed to treat lending to industrial units in SEZs for buying plant and machinery as non-CRE.
Director General, Export Promotion Council for EOUs & SEZs LB Singhal termed the RBI draft guidelines as progressive proposals.
He said treating loans for acquiring land for developing SEZs as non-CRE lending was also part of E-GOM proposal itself.
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