Mumbai, February 13 The Reserve Bank proposed on Friday allowing banks to extend loans to REITs, capping the total exposure at 49 percent of the asset value under each investment trust.
Banks will provide loans only to listed Real Estate Investment Trusts (REITs).
Currently, there are five listed REITs in India – Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and Knowledge Realty Trust.
Currently, banks provide credit to Infrastructure Investment Trusts (InvITs), which are similar to REITs.
REITs and InvITs were conceptualized with the aim of freeing up banks' funds in completed and operational real estate and infrastructure projects by refinancing such exposures with pooled funds of institutional as well as retail investors.
In line with these objectives, commercial banks were not permitted, ab initio, to lend to these entities.
While bank loans to InvITs were allowed subsequently, lending to REITs was not permitted hitherto.
Last week, the RBI proposed to permit commercial banks to extend finance to REITs.
On Friday, the central bank issued a draft circular in this regard.
"Banks shall be permitted to lend to REITs which are registered with and regulated by SEBI," stated the draft RBI (Commercial Banks – Credit Facilities) Second Amendment Directions, 2026.
A bank may lend only to a REIT which is listed, has completed a minimum of three years of operations, and has not been subject to any material adverse regulatory action during the previous three years.
"The aggregate credit exposure of all banks to the borrowing REIT and its underlying SPVs/holdcos taken together, shall not exceed 49 percent of the value of the REIT's assets as on March 31st of the previous financial year, or such lower limit as may be decided by the bank's Board based on the credit rating of the REIT or otherwise," the draft said.
It further stated that a bank should strictly monitor the end use of funds lent to REITs to ensure that the route is not being used to finance activities which are not permitted, such as land acquisition, even where such acquisition forms part of a project.
"Lending to a REIT by a bank shall only be by way of loans not involving bullet or ballooning principal repayments," stated the draft on which the RBI has sought comments till March 6, 2026.
The RBI proposes to allow bank lending to REITs from July 1, 2026, or an earlier date.
REITs are investment vehicles that own or operate income-generating real estate, enabling investors to earn a share of the income produced without directly purchasing properties.
The draft also proposes to harmonize existing guidelines in respect of lending to InvITs for parity with prudential safeguards proposed for lending to REITs, considering the similarity in organizational structure and risks.
