NEW DELHI: The Reserve Bank of India (RBI) has suggested allowing commercial banks to extend loans to real estate investment trusts (REITs) that are registered and regulated by the Securities and Exchange Board of India (SEBI). A draft circular has been issued with a set of prudential conditions, including norms related to leverage and security.
The new regulations are expected to take effect on July 1, 2026.
The central bank indicated that a bank’s total exposure to REITs should not exceed 10% of its eligible capital base, within the overall prudential ceiling for commercial real estate (CRE) exposures. Additionally, banks are advised to establish internal limits for their total exposure to the real estate sector, including its sub-categories.
According to the RBI, banks can lend to REITs provided they have a board-approved policy and meet eligibility criteria such as being listed, having a minimum of three years of operational history, and reporting positive net distributable cash flows in the last two financial years.
Furthermore, the bank financing to REITs must be fully secured by a mortgage of specified assets, alongside a charge over receivables or an escrow mechanism to safeguard cash flows from diversion.
RBI also permits lending to REITs through overseas branches for REITs established abroad, granted the jurisdiction has a robust insolvency or bankruptcy framework. Banks should ensure that the borrowing by the REIT’s trustee complies with the powers stipulated in the trust deed, especially for securing enforcement.
It is also proposed that no underlying special purpose vehicles (SPVs) under the REIT should be in financial distress, and lending to REITs must be structured as loans without bullet or balloon principal payments.
In scenarios where bank funding is intended to refinance existing loans of REIT SPVs, such refinancing will only be permissible for projects that have obtained completion and occupancy certificates or equivalent approvals.
Additionally, the total credit exposure of all banks to a borrowing REIT and its associated SPVs or holding companies must not exceed 49% of the REIT’s asset value as of March 31 of the previous financial year.
