India's highest banking authority, RBI has issued guidelines to Indian and foreign banks operating in India with immediate effect that loans to SEZs be treated as "Commercial Real Estate" loans and not as loans to infrastructure projects. This is a major setback to coporates with SEZ plans and I am in 100% agreement with RBI's direction. This also means, sharp rise in interest rates for SEZs, as commercial real estate has a higher risk weight and requires higher provisioning by banks in their books.
Is the RBI move right ? Experts have lauded and are in total agreement with RBI move. RBI last month had told that SEZ policy would lead to uneven development in India.
Since the last two months, in every report that I have published, I have raised the issue of whether SEZ policy is to promote industry or is it a Land Bank scam ? IMF has also slammed the flawed SEZ policy in India.
Banks that have heavy exposure to commercial real estate are ICICI Bank at Rs 6,984 crore, State Bank of India with Rs 4,574 crore and Punjab National Bank with Rs 2,663 crore. Considering the size and operations of these banks, ICICI and PNB appear to be the most vulenarable to any default by borrowers and will directly affect their bottomline.
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