The Reserve Bank of India has allowed commercial banks to lend directly to Real Estate Investment Trusts, commonly known as REITs. The move introduces a new funding channel for the real estate sector and strengthens regulated institutional financing.
Earlier, banks were permitted to lend only to special purpose vehicles owned by REITs. They could also invest in REIT units within defined limits. However, direct lending to REITs at the trust level was not allowed. This restriction has now been removed.
With the latest policy change, banks can extend loans directly to REITs. These loans will be governed by prudential safeguards set by the Reserve Bank of India to ensure financial stability and risk control.
REITs are investment vehicles that own, operate and manage income-generating commercial real estate assets. These assets include office parks, shopping malls, logistics facilities and warehouses. REITs are regulated by the Securities and Exchange Board of India and are required to distribute a significant portion of their cash earnings to unitholders. They have become an important platform for channelising long-term investment into India’s commercial real estate market.
The central bank has stated that detailed lending guidelines will be issued separately. These guidelines will define eligibility criteria, exposure limits and risk-management norms for banks lending to REITs. A draft framework is expected to be released for public consultation in the coming period.
The new lending option is expected to improve funding flexibility for REITs. At present, REITs depend largely on capital markets, bond issuances and sponsor funding. Direct access to bank credit could help diversify funding sources and support refinancing requirements. It may also provide more stable and predictable access to long-term capital.
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