REITs and InvITs may get a boost as RBI allows bank lending: What it means for investors

The move is expected to improve funding access for these investment vehicles, which pool money from investors and invest in income-generating real estate and infrastructure assets.

What has RBI allowed?

Under the revised framework, banks can now extend loans to REITs and InvITs, including participation by overseas branches of Indian banks under syndication arrangements.

However, RBI has retained strict safeguards, including:

• Aggregate bank exposure to REITs/InvITs capped at 49% of asset value

• Risk weights of 100% for REIT exposures (higher in some capital market cases)

• Corporate lending risk weights for InvITs

• Restrictions on financing land acquisition and under-construction assets

• Limits on lending to stressed SPVs

• Removal of earlier proposal on “material adverse regulatory action,” to be assessed through due diligence

RBI also clarified that repayment structures may align with cash flows, including step-up structures, but continues to restrict bullet and balloon repayment models in most cases.

What this means for REITs and InvITs

The policy is expected to improve liquidity and funding flexibility for REITs and InvITs, especially for acquiring income-generating assets.

By allowing bank lending, these instruments may have broader access to capital beyond traditional sources such as institutional investors and debt markets.

However, RBI has made it clear that financing cannot be used for activities not permitted directly, such as land acquisition or under-construction projects.

What it means for investors

The key takeaway for retail investors is that easier access to bank funding does not automatically translate into higher returns.

According to CFP Shweta Shastri, the RBI move may improve funding access but does not change the core investment risks.

“The RBI’s move gives REITs and InvITs easier access to bank funding, which can help them acquire quality income-generating assets and support long-term growth. But easier financing doesn’t automatically mean higher returns,” she said.

She cautioned investors against reacting only to regulatory changes.

“I think while evaluating REIT & INVIT one should focus on what really matters like occupancy levels, tenant quality, cash-flow stability, debt loads, and distribution yields,” she said.

“Treat REITs and InvITs as income-diversification tools in your portfolio, not as short-term trades driven by regulatory changes,” she added.

In another comment, she said: “It is only a diversification tool. Regulatory changes may increase supply, but it is not suitable for all investors. Fundamental factors will continue to matter—such as occupancy levels, cash-flow stability, and similar metrics.” She added that investors should focus on core fundamentals rather than reacting to policy changes, as long-term returns depend more on asset quality and income stability than on regulatory developments.

What are REITs and InvITs?

REITs mainly invest in commercial properties like offices and malls, while InvITs focus on infrastructure assets such as roads, power transmission lines, and renewable energy projects.

REITs in India are classified as equity-related instruments for mutual funds and SIFs, boosting liquidity and participation.