MUMBAI: On Friday, the Reserve Bank of India proposed allowing banks to extend loans to Real Estate Investment Trusts (REITs) with specific prudential safeguards, aiming to enhance the financing pool for the real estate industry.
REITs are investment vehicles that manage income-producing real estate, offering investors a way to earn a portion of the income without directly buying properties.
Developed in India, REITs and Infrastructure Investment Trusts (InvITs) aim to liberate banks’ funds tied up in completed and operational real estate and infrastructure projects by refinancing these with pooled resources from institutional and retail investors.
Initially, commercial banks were not allowed to lend to these entities; however, lending to InvITs was later permitted, while REITs remained excluded.
To boost financing in the real estate sector, RBI Governor Sanjay Malhotra stated that banks would be allowed to lend to REITs with certain prudential safeguards in his bi-monthly monetary policy announcement.
The RBI’s ‘Statement on Developmental and Regulatory Policies’ indicated plans to permit commercial banks to finance REITs after a thorough assessment, due to the strong regulatory and governance framework governing listed REITs.
The current guidelines for InvIT lending will also be aligned with the proposed safeguards for REIT financing.
Currently, there are five listed REITs in India: Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and Knowledge Realty Trust.
Subsequently, draft directions will be issued for public consultation, as stated by the central bank.
Additionally, Finance Minister Nirmala Sitharaman, in the Union Budget, advocated accelerating the “recycling” of real estate assets owned by Central Public Sector Enterprises (CPSEs) via dedicated REITs.
The RBI also introduced measures to develop the corporate bond market.
An active derivatives market can enhance credit risk management, improve liquidity and efficiency in the corporate bond space, and facilitate the issuance of corporate bonds across various ratings.
A proposal was announced in the Union Budget on February 1, 2026, to introduce total return swaps on corporate bonds and derivatives on corporate bond indices.
A regulatory framework for these derivatives will be released for public feedback soon.
The RBI has also suggested issuing revised guidelines for Authorised Dealer banks and stand-alone primary dealers (SPDs), granting them more flexibility in executing foreign exchange transactions.
These dealers, authorised under FEMA, 1999, utilize the foreign exchange market for market making, balance sheet management, and risk hedging.
The regulations governing these Authorised Dealers have been reviewed and refined to align with current market practices and needs, both locally and globally.
The revised framework will provide greater flexibility regarding foreign exchange products, risk management, and platforms. Draft guidelines will be shared shortly for public consultation.
In addition, the RBI has proposed eliminating the ₹2.5 lakh crore cap on investments under the Voluntary Retention Route (VRR).
Investment limits for each category of securities under the VRR will now conform to the ceilings established under the General Route.
