RBI allows banks to lend directly to REITs & InvITs, caps apply

Mumbai: The Reserve Bank of India (RBI) Wednesday allowed banks to lend directly to Real Estate Investment Trusts (REITs). It capped overall bank exposure to a REIT or Infrastructure Investment Trust (InvIT), with its underlying SPVs and holding companies, at 49% of its asset value .

The new framework requires that at least 80% of a REIT's underlying assets generate positive cash flows from operations for a minimum of one year for it to be eligible for bank funding.

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Similarly, banks can lend only to listed InvITs with at least 80% of assets invested in completed, revenue-generating infrastructure projects that have generated positive cash flows for at least one year. The RBI said that a bank will be permitted to lend to REITs which are registered with and regulated by Sebi. The central bank said the overall exposure of all banks to a borrowing REIT, together with its underlying SPVs and holding companies, should not exceed 49% of the value of the REIT's assets. RBI has prescribed an identical ceiling for InvITs.

Banks will also be required to ensure that overall leverage of the borrowing REIT or I/IT remains within the prudential ceiling prescribed by Sebi, or a lower limit fixed by their boards.

The RBI directed banks to frame board-approved policies covering appraisal mechanisms, underwriting norms, debt service coverage ratio benchmarks, exposure limits and monitoring frameworks before extending such loans. For REITs, projects should have a completion or occupancy certificate, while InvIT projects should have commenced commercial operations.

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The central bank also prohibited bullet and balloon repayment structures for loans extended to REITs and InvITs, saying repayment schedules should not result in a disproportionate concentration of principal repayments towards the end of the tenure. The restriction will not apply to investments in bonds, debentures and commercial paper. Also, RBI mandated that bank financing should be secured through charges on underlying assets, assignment of cash flows and receivables. The rules will come into effect from October 1, 2026 or earlier adopted by a bank in entirety.