Banks to be allowed to lend to REITs, RBI proposes; draft directions to be issued soon

The Reserve Bank of India on Friday, February 6 proposed allowing banks to lend funds to Real Estate Investment Trusts (REITs) while maintaining prudential safeguards to strengthen financing support for the real estate sector.

REITs are companies that own, operate or finance income-generating real estate. They are a type of investment vehicle that enables investors to earn a share of the income produced without directly purchasing properties. 

REITs and Infrastructure Investment Trusts (InvITs) were introduced in India to help banks free up capital locked in completed and operational real estate and infrastructure projects by refinancing these exposures with pooled funds of institutions and retail investors.

Infrastructure Investment Trusts (InvITs) are SEBI-regulated collective investment vehicles that allow investors to pool money and invest in income-generating infrastructure projects like toll roads, power transmission lines, etc. 

In line with these objectives, commercial banks were initially not permitted to lend to REITs and InvITs. Subsequently, the RBI permitted banks to lend to InvITs, but lending to REITs was still not allowed. 

"To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards," RBI Governor Sanjay Malhotra said on Friday. 

RBI’s proposal for REITs

RBI's 'Statement on Developmental and Regulatory Policies' proposed to permit commercial banks to finance REITs after careful review and consideration, ensuring the presence of a strong regulatory and governance framework for listed REITs. The existing guidelines on lending to InvITs are also being harmonised to align with the prudential safeguards proposed for lending to REITs, it added.

At present, 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.

"We commend RBI’s landmark move to allow banks to lend directly to REITs at the trust level. This policy step will enhance access to long-term, stable financing for REITs, complementing traditional capital market funding and broadening the financing ecosystem for income-producing real estate. It further validates the thesis that REITs are long-term capital structures of the highest credit quality, deserving of robust financing that banks can provide,” said Amit Shetty, CEO, Embassy REIT. 

He added, “This policy will help expand access to longer-term, competitive bank finance, which will support healthier balance sheets and stable growth by reducing the need for frequent refinancing. By having an array of bank lending options and the capital markets to fund their businesses and strategic objectives, REITs are poised to deliver greater growth and, ultimately, better returns to unitholders."

Draft directions will be issued for public consultation soon, the central bank said.

“The move to allow banks to lend to REITs with certain prudential guidelines augurs very well for the real estate sector. Overall, India’s positive growth and inflation outlook, stable external sector, credit growth and soft interest rate environment are long-term positives for the real-estate sector,” said Sanjay Dutt, MD and CEO, TATA Realty and Infrastructure Ltd. 

In the Union Budget 2026, Finance Minister Nirmala Sitharaman proposed to accelerate "recycling" of real estate assets owned by Central Public Sector Enterprises (CPSEs) by setting up dedicated REITs. Separately, the RBI also announced measures for the development of the corporate bond market.