RBI Draft Norms Tighten Bank Lending to REITs

The Reserve Bank of India (RBI) has proposed stricter norms permitting banks to lend to Real Estate Investment Trusts (REITs) under defined conditions. As per the draft Second Amendment Directions, 2026, banks may extend credit only to REITs registered with the Securities and Exchange Board of India (SEBI), listed on recognised stock exchanges, and having a minimum three-year operational track record with positive cash flows.

Parallel draft guidelines have also been issued for Infrastructure Investment Trusts (InvITs), with broadly similar exposure norms and safeguards.

Eligibility and Exposure Limits

Under the draft framework, banks’ aggregate credit exposure to a borrowing REIT and its underlying special purpose vehicles (SPVs) or holding companies cannot exceed 49 per cent of the value of the REIT’s assets as on March 31 of the previous financial year. Banks may prescribe a lower cap subject to board approval.

The central bank has emphasised prudent risk assessment, given that REITs operate as trusts and hold income-generating real estate assets through SPVs.

Restrictions on Loan Structure

The RBI has clarified that lending to REITs must be in the form of loans without bullet or ballooning principal repayments. This is aimed at ensuring stable amortisation schedules and reducing refinancing risks.

Banks must also strictly monitor the end use of funds. Lending through REIT structures cannot be used to finance activities not permitted under regulatory norms, including land acquisition, even if such acquisition forms part of a larger project.

Refinancing and Legal Safeguards

Where financing is intended to refinance existing term loans of SPVs, it must relate only to completed projects that have received Completion Certificates (CC), Occupancy Certificates (OC), or equivalent approvals. This condition seeks to limit exposure to construction and execution risks.

As REITs are structured as trusts, banks must remain mindful of legal provisions, especially those relating to enforcement of security and recovery mechanisms.

Important Facts for Exams

• REITs and InvITs are regulated by the Securities and Exchange Board of India (SEBI).
• REITs invest in income-generating real estate assets through SPVs.
• Banks’ aggregate exposure to a REIT and its SPVs is capped at 49% of asset value under RBI draft norms.
• Bullet repayment refers to repayment of principal in a single lump sum at maturity.

Overseas Lending Provisions

The RBI has also allowed overseas branches of Indian banks to lend to REITs constituted abroad, provided an effective statutory or regulatory insolvency and bankruptcy framework exists in the concerned jurisdiction. The draft guidelines aim to balance credit expansion with financial stability while deepening India’s REIT and InvIT markets.