The Reserve Bank of India (RBI) has allowed banks to lend directly to Real Estate Investment Trusts (REITs) and InvITs but kept key prudential safeguards on exposure limits, asset quality and repayment structures.

Eligible REITs and InvITs must have at least 80% of their assets in completed, revenue-generating projects with positive operating cash flows for a minimum of one year. This is a relaxation from the draft proposal of REITs having a requirement of running operations for a minimum period of three years before becoming eligible for bank finance.  

The final guidelines, issued on Wednesday, said overseas branches of Indian banks may participate in REITs financing under syndication arrangements, subject to a 20% cap on contribution and a 150% risk weight. 

Under the norms, banks can lend only to listed REITs.

The RBI has put a cap where aggregate bank exposure, including that to underlying special purpose vehicles (SPVs) and holding companies, does not exceed 49% of the trust’s asset value. 

Banks will also need board-approved policies covering appraisal, underwriting, exposure limits and monitoring, while ensuring leverage remains within SEBI-prescribed limits. 

The new framework will come into effect from 1 October 2026, or earlier if adopted by banks. 

The central bank has rejected requests to allow financing of land acquisition and under-construction assets through REIT and Infrastructure Investment Trusts (InvITs) structures, reiterating that activities not permitted directly cannot be financed indirectly.

The RBI also removed the earlier proposal on "material adverse regulatory action", instead directing lenders to assess such impacts through due diligence. Concerns regarding exposure to stressed SPVs were partially accepted, with restrictions placed on financing SPVs already facing financial difficulty under the RBI's stressed asset norms.

On acquisition finance, the RBI permitted REITs, in addition to InvITs, to access bank funding for acquisitions under a revised framework. Small finance banks, however, are not allowed to provide acquisition finance to InvITs.

The RBI also retained restrictions on bullet and balloon repayment structures for bank loans to REITs and InvITs. This will not apply to banks’ investments in bonds, debentures and commercial paper issued by such trusts. This, though, will not preclude structuring the repayment schedule in line with projected cash flows.

Under the guidelines, risk weights have also been revised, with REIT exposures set at 100% (or 125% if classified as capital market exposure), while InvIT exposures will attract corporate lending risk weights. 

The RBI said exposures will ultimately shift to the capital charge framework effective 1 April 2027.