Banks wary of loans to SEZs

Manufacturing units cannot be clubbed with realty: Nath.

The government's grand plans to boost economic growth through special economic zones received a jolt today when leading bankers indicated they would back the Reserve Bank of India's decision to clamp down on lending to SEZs.

ICICI Bank CEO and Managing Director KV Kamath said the bank would go slow because the government's policy on SEZs was still unclear.

"Let the uncertainties on SEZs settle and then we will look at the opportunities," he told reporters on the sidelines of the Ficci-IBA global banking conference in Mumbai. ICICI Bank is the country's largest private sector bank.

Citibank's India head Sanjay Nayar, too, said the RBI's decision to classify SEZs as commercial real estate exposure was apt.

"The conservative approach is prudent in funding projects in the real estate sector," he said, adding that Citi would look at funding SEZ proposals once there was clarity on land acquisition.

Bank of Baroda Chairman Anil Khandelwal added: "SEZs are a national priority and public sector banks will respond to it accordingly. Since it has been classified as exposure to commercial real estate, we will have to go to our boards to decide how much exposure we can take."

The RBI had last week directed banks to treat loans to such zones on a par with lending to the real estate sector. This means banks now have to make higher provisions and assign a higher risk weight for allocation of capital.

In New Delhi, the commerce ministry, which said it had not been consulted by the RBI on the issue, is planning to write to the RBI saying lending to units inside the SEZ could not be treated on a par with real estate since the prime activity of the units was manufacturing.

Commerce and Industry Minister Kamal Nath, while addressing a meeting of the Export Promotion Council for export-oriented units (EOUs) and SEZs, said the matter had also been brought to the notice of Prime Minister Manmohan Singh.

"The prime minister is looking into it," he said.

Even as the debate on concessions to SEZs was simmering, the prime minister today asked 10 northern states to go slow on offering sops to drive industrial development, though he did not mention SEZs.

The prime minister was addressing a PHDCCI-organised conclave of chief ministers of northern states, at least three of which have approved SEZ projects, in Chandigarh.

Meanwhile, the Board of Approvals for SEZs today gave its formal approval to 18 proposals and a clearance in principle to 13 others, including Posco's Rs 53,000 crore steel SEZ in Orissa.

Lest the fears of loss of farm land to SEZs impact the UPA's pro-farmer image, the Union Cabinet is set to consider a Rs 16,900 crore relief and rehabilitation package for farmers in 31 districts of Andhra Pradesh, Karnataka, Maharashtra and Kerala.