In its attempt to boost SEZs development across the country, the Reserve Bank of India in a recent decision has classified loans to SEZs as infrastructure lending, which will lead to lesser cost of borrowing and easier lending norms for developers. In this connection, the finance ministry about a month back had allowed developers to access overseas loans through the external commercial borrowing route.

Giving explicit view of the policy initiatives, the central bank further clarified that the credit facilities extended by banks or other financial institutions to entities engaged in developing, operating or maintaining a SEZ will fall under infrastructure lending norms. Exposure of banks towards acquisition of SEZ units or purchase and working capital requirements, loans to developers, who have entered into lease contracts with units for period equal to repayment time of the credit availed and loans to captive SEZs like the ones being developed by Infosys and TCS will be treated as infrastructure lending.

Similarly, the bank credit to co-developers engaged in the construction of supporting infrastructure like sewerage and electrical lines will be treated as infrastructure lending. Loans to developers of SEZs and units inside them were classified as real estate lending by RBI in September 2006 in the back drop of large number of real estate bandwagon hoping to make quick profit from the tax free incentives of the scheme resulting in expensive loans by at least three percentage points. The guiding principle of the relaxed lending norms are that the repayment of loans will be based on economic activity and not real estate rentals, which are volatile as they are subject to market risks.