- Banks can lend only to SEBI-registered and listed REITs under new RBI rules
- Lenders must adopt board-approved policies for credit appraisal and risk management
- Borrowing by REITs must comply with eligibility and end-use norms prescribed by RBI
The Reserve Bank of India (RBI) has issued final amendment directions governing bank lending to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) on Wednesday, tightening oversight while providing a clearer framework for financing the fast-growing investment vehicles.
Under the revised norms, banks will be permitted to lend only to REITs that are registered with the Securities and Exchange Board of India (SEBI) and listed on recognised stock exchanges.
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The central bank has also directed lenders to implement board-approved policies governing exposure to REITs. These policies must cover key aspects such as credit appraisal, sanctioning procedures, underwriting standards, risk management and monitoring mechanisms.
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The move is aimed at ensuring prudent lending practices while supporting financing needs of REITs, which have emerged as important vehicles for monetising income-generating real estate assets.
As part of the revised framework, banks have been instructed to ensure that any borrowing by REITs remains within the eligibility conditions prescribed under applicable regulations. Lenders will also be required to closely monitor the end use of funds to ensure borrowings are deployed for permitted purposes.
The RBI has stipulated that banks can lend only to listed REITs whose asset portfolios are largely income-generating. Specifically, at least 80% of the REIT's assets must be completed and revenue-generating assets that produce positive cash flows.
To contain concentration risks, the regulator has imposed a cap on bank exposure. A bank's lending exposure to a borrower REIT cannot exceed 49% of the value of the REIT's assets.
Further strengthening risk safeguards, the RBI has mandated that all loans extended to REITs must be fully secured.
The final directions are expected to bring greater clarity to lenders and investors while balancing the need for credit access with financial stability considerations. The framework also aligns bank lending practices with the underlying business model of REITs, which are designed to hold and operate stable, cash-generating real estate assets.
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