Good news for REIT investors as they are likely to get higher returns and dividends due to this decision by RBI announced today

On February 6, 2026, the Reserve Bank of India announced plans to boost financing for the real estate sector by allowing banks to lend to REITs provided they follow certain prudential safeguards. This means that banks can now extend loans to REITs, which can help reduce their borrowing costs, ultimately benefiting REIT investors with higher dividends and returns on their investment.

According to the Securities and Exchange Board of India (SEBI) regulations, REITs have to distribute 90% of their net distributable cash flows to investors. Hence with the lower cost of financing, REITs may end up with more distributable cash.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, says that banks were generally restricted from lending directly to the REITs and they had to borrow through their Special Purpose Vehicles (SPVs) or rely on issuing bonds and raising equity in the capital markets.


Magazine says: “This announcement by the RBI Governor Sanjay Malhotra is likely to be a major boost to the REITs, and make it easier for the REIT trusts to raise funds at relatively cheaper rates.”

Here’s how this RBI announcement helps REIT investors

Higher distributable cashflow for REIT investors

Magazine says that REITs may now easily refinance existing higher-cost debt with more stable bank loans, improving their distributable cash flows.

Vimal Nadar, National Director & Head, Research at Colliers India, said the RBI’s decision to allow banks to lend directly to REITs is a significant milestone for commercial real estate financing in India.

Nadar says: “By broadening access to stable, long-term bank capital, this move is expected to lower borrowing costs for REITs and enhance cash flow, translating into higher distributable cash flows and potentially higher dividends for retail investors.”

According to Santanu Sengupta, Former MD of Wells Fargo and present global banking board member, the RBI’s decision to allow banks to lend to REITs with prudential safeguards can likely lower the cost of capital for REITs by allowing them to move from more expensive & unpredictable debt capital markets to stable bank financing and support a more resilient balance sheet.

REIT portfolio of assets may increase, creating a large asset base for higher payout for investors in future

Sengupta partly agrees with Magazine and says that while this allowing banks to lend to REITs improves cash flows for ReITs and should support a higher distribution payout to investors, this may not necessarily result in immediate increase in payout to investors. However, if the REIT uses improved liquidity to acquire more properties, it could create a larger asset base, making room for higher payouts in the future.

Sengupta says this announcement should translate into more stable cash flows for investors, and a more resilient ReIT asset class over time.

According to Sengupta: “Combined with a neutral policy stance and proactive liquidity management, the move signals RBI’s intent to support sustainable growth in real assets without compromising financial stability.”

Nadar says this announcement reduces reliance on capital markets and strengthens balance-sheet flexibility, supporting portfolio expansion and asset consolidation.

Nadar points out: “High occupancy levels, stable and growing NOI, and consistent distribution yields have reinforced investor confidence, and improved access to bank funding is likely to further enhance REIT returns while accelerating the next phase of REIT-led growth in India’s office market.”

RBI February 6, 2026 announcement about banks being permitted to lend to REITs

RBI announced on February 6, 2025, that the Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) were conceptualised in India with a view to free 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.

Consistent with these objectives, commercial banks were not permitted, ab initio, to lend to these entities. While bank lending to InvITs was allowed subsequently, lending to REITs was not permitted so far.

RBI said: “Upon review and considering the presence of strong regulatory and governance framework for listed REITs, it is proposed to permit commercial banks to extend finance to REITs, subject to appropriate prudential safeguards.”

The RBI said that the existing guidelines on lending to InvITs are also being harmonised for parity with prudential safeguards proposed for lending to REITs. Draft directions in this regard will be issued shortly for public consultation.

The Indian REITs Association (IRA) in a press release said that they welcome the Reserve Bank of India’s decision to allow banks to lend directly to Real Estate Investment Trusts (REITs), as announced by RBI Governor Shri Sanjay Malhotra. This landmark move strengthens the financial framework for REITs and supports their long-term growth.

IRA said in their press release that direct access to bank lending provides REITs with a stable, long-term source of funding, expanding the avenues of fund raising for these instruments. This is particularly important for an asset class built on long-duration, income-generating real estate.

IRA said: "The ability to borrow at the REIT level is also expected to result in more efficient financing costs. REITs today raise debt funds through issuance of debt securities which are subscribed by mutual funds, NBFCs, etc. Since these investors prefer instruments with 3-5 years tenor, long term funding remains a challenge. With RBI allowing banks to lend to REITs, these vehicles will be able to access long term funding."

Neeraj Toshniwal, CFO Knowledge Realty Trust REIT, says: "We welcome the RBI’s move to allow bank lending to REITs within a well-defined framework. Aligning REIT norms with InvITs brings greater clarity and reinforces the focus on strong governance. This approach supports growth while ensuring financial stability and long-term investor confidence."