The Reserve Bank of India (RBI) has introduced a new regulatory framework that allows commercial banks to provide direct financing to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), creating an additional funding avenue for operational real estate and infrastructure assets. The guidelines, issued after consultations on draft norms released earlier this year, will come into effect from October 1, 2026.
Under the revised rules, banks will be permitted to lend to SEBI-registered REITs and InvITs, subject to prescribed eligibility requirements and exposure limits. A key safeguard retained by the central bank restricts the combined exposure of all banks to a trust, along with its special purpose vehicles (SPVs) and holding entities, to 49% of the total value of the trust’s assets.
One of the notable changes from the draft proposal relates to eligibility criteria. Instead of requiring a trust to establish a three-year operating history, the RBI has allowed lending decisions to be based on the cash-flow track record of the underlying assets. This is expected to widen financing opportunities for trusts backed by stable, income-generating assets.
The framework also mandates that all loans be fully secured and structured around the cash-generation profile of the assets. Banks will not be allowed to offer bullet repayment or balloon repayment structures, with repayments required to align with expected revenue streams. Additionally, at least 80% of the assets held by a borrowing REIT or InvIT must comprise income-generating properties or infrastructure assets.
The RBI has also outlined provisions for overseas financing. Branches of Indian banks operating abroad can participate in syndicated funding arrangements for REITs, subject to specified conditions. Their contribution has been capped at 20%, with a risk weight of 150% applicable to such exposures.
The move marks a significant policy shift, as direct bank lending to REITs was previously restricted. Industry stakeholders believe the new framework could diversify funding sources for REITs and InvITs, which have traditionally relied on capital markets and institutional investors, while ensuring prudent controls on leverage, asset quality and repayment discipline.
Source: Prop News Time
