Govt Land Mortgaged For Loans: CAG – Times of India – 4-Dec-2014

December 5, 2014 - Uncategorized

A few Special Economic Zone (SEZ) developers mortgaged government land and raised over Rs 6,300 crore from banks, and three of them managed to get over Rs 2,200 crore despite diverting land for other uses.

In its latest report on SEZs, the Comptroller and Auditor General (CAG) said public sector banks failed to carry out due diligence before extending loans to these developers in Andhra Pradesh, West Bengal, Karnataka and Maharashtra, ignoring the fact that the mortgaged property was government land.

In three cases, the auditor said the SEZ land was diverted to other use yet the developers managed to raise Rs 2,200 crore from banks.

Interestingly, when CAG pointed this out to the commerce ministry for restricting mortgage of government land by issuing instructions, the ministry refused on the grounds that it was the subject matter of banks extending loans.

While issuing NOC for SEZ land, it is categorically mentioned that land is not a subject matter of mortgage. The commerce ministry, however, in its response (in June 2014) to the auditor, said that “SEZ Act does not restrict the developer from mortgaging the leasehold rights in favour of banks and the bank has the right to proceed” against the developers in case of default.

The ministry, however, was silent on how it will recover loans from the government which a private SEZ developer had availed in case of default.

“There are also no clear provisions or instructions as to how banks would realize the loan amount in the case of default by the borrowing developer as the leased land belongs to government and, further, SEZ land cannot be sold,” the auditor said in its report tabled in Parliament last week.

The extent of such questionable loans to SEZ developers may be much larger as the auditor said that it received response from only 10 bank branches on the query sent to all banks which had extended loans against mortgage of government lands. The scale of the irregularity could be gauged from the fact that only duty exemption received by SEZ units was to the tune of Rs 83,000 crore between 2007 and 2013.

“We had received 10 responses (from banks), according to which 11 developers in Andhra Pradesh, Karnataka, Maharashtra and West Bengal had raised loans of Rs 6,309.53 crore against mortgage of lease hold government land,” CAG said.

It further noted that three out of 11 developers had raised loans amounting to Rs 2,211 crore (35% of Rs 6,309 crore) against the notified SEZ lands which are not put to use as detailed below.

As public sector banks are already burdened with huge bad debts, with less than 50% SEZs operational, the default of loans extended to such units may add on to the rising NPAs of government banks.


Times of India

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