NEW DELHI: The Reserve Bank of India (RBI) has proposed permitting commercial banks to lend to real estate investment trusts (REITs) registered and regulated by the securities and exchange board of India (SEBI), and introduced a set of prudential conditions, including leverage and security norms, in a draft circular issued for comments.
The proposed directions are slated to come into force from July 1, 2026.
The central bank has proposed that within the overall prudential ceiling for commercial real estate (CRE) exposures, a bank’s aggregate exposure to REITs should not exceed 10% of its eligible capital base. RBI also proposed that banks should set internal limits for their overall exposure to the real estate sector, including sub-categories.
RBI said banks will be allowed to lend to REITs, subject to a board-approved policy and eligibility criteria such as the REIT being listed, having completed at least three years of operations, and reporting positive net distributable cash flows in the preceding two financial years.
It further said bank finance to REITs must be fully secured by mortgage of identified assets, along with a charge over receivables or an escrow mechanism to prevent diversion of cash flows.
RBI said banks will be permitted to lend to REITs, including through overseas branches for REITs constituted overseas, provided the jurisdiction has an effective insolvency or bankruptcy mechanism. Since REITs are structured as trusts, RBI has asked banks to be mindful of legal provisions and ensure that borrowing by the trustee is within the powers allowed under the trust deed, especially for enforcement of security.
It also proposed that none of the underlying special purpose vehicles (SPVs) under the REIT should be facing financial difficulty, and that lending to REITs should be through loans without bullet or ballooning principal repayments.
For cases where bank funding is meant to refinance existing term loans of REIT SPVs, RBI proposed that such refinancing should be allowed only for completed projects that have received a completion certificate, occupancy certificate, or equivalent approvals.
RBI has also proposed that aggregate credit exposure of all banks to a borrowing REIT and its underlying SPVs or holding companies taken together should not exceed 49% of the value of the REIT’s assets as on March 31 of the previous financial year.
