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The Reserve Bank of India (RBI) has issued final guidelines allowing commercial banks to lend directly to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), widening access to institutional credit for the real estate and infrastructure sectors. The framework, which comes with prudential safeguards, caps aggregate bank exposure to a trust and its underlying entities at 49% of asset value, mandates fully secured lending and links repayment structures to cash flows. The revised norms replace certain restrictions proposed in the draft framework and are expected to provide REITs and InvITs with an additional source of long-term capital while maintaining financial stability and risk controls within the banking system.
The Reserve Bank of India has finalised a new framework permitting commercial banks to lend directly to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), creating a fresh avenue of financing for income-generating real estate and infrastructure assets while retaining a series of safeguards aimed at limiting systemic risk. The directions were issued in the past week following consultations on draft proposals released earlier this year and will take effect from October 1, 2026.
Under the revised framework, banks can extend credit to SEBI-registered REITs and InvITs, subject to eligibility conditions and exposure limits. The RBI has retained a key safeguard that restricts the aggregate exposure of all banks to a borrowing trust, together with its underlying special purpose vehicles (SPVs) and holding companies, to 49% of the value of the trust’s assets.
The central bank has also revised one of the more debated provisions from the draft norms. Instead of requiring a REIT or InvIT to demonstrate a three-year operational track record, the final framework permits lending based on the cash-flow history of the underlying assets. This change is expected to make financing accessible to a wider pool of trusts while ensuring that lending remains linked to proven income-generating assets.
According to the directions, bank loans must be fully secured and structured in line with the cash-flow profile of the underlying assets. The RBI has prohibited bullet repayment and balloon repayment structures, requiring repayment schedules to be aligned with expected cash generation. In addition, at least 80% of the assets held by the borrowing REIT or InvIT must be income-generating assets.
The framework also addresses overseas financing arrangements. Overseas branches of Indian banks will be permitted to participate in syndicated financing of REITs under specified conditions, with their contribution capped at 20% and subject to a risk weight of 150%. The provision is intended to support financing flexibility while maintaining prudential controls over cross-border exposures.
The move marks a significant shift in the regulatory treatment of REITs. Historically, banks were not permitted to lend directly to these trusts, although lending to certain underlying entities and InvITs was allowed. The RBI had proposed relaxing the restriction earlier this year as part of a broader effort to deepen financing options for the real estate sector and support capital formation through regulated investment vehicles.
Industry participants have argued that direct access to bank credit could diversify funding sources for REITs and InvITs, which have traditionally relied on capital markets, institutional investors and refinancing mechanisms. The final guidelines seek to balance that objective with safeguards relating to leverage, asset quality and repayment discipline, ensuring that the expanded lending framework remains anchored to operational and cash-generating assets.
Source - PTI
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