Key Highlights
- Bank financing to REITs is confined to listed trusts with at least three years of profitable operations.
- The total exposure of all banks to a REIT and its affiliated SPVs cannot surpass 49% of the REIT’s audited asset base as of March 31 of the preceding FY.
- Lending must be provided solely as term loans; bullet or balloon repayment schedules are prohibited.
- Funds may not be diverted to prohibited activities such as land purchase, and refinancing is allowed only for projects with a Completion or Occupancy Certificate.
- Overseas branches may lend to foreign‑incorporated REITs only where a robust insolvency‑resolution regime exists; similar provisions apply to InvITs.
Detailed Insights
The Reserve Bank of India’s Second Amendment to the Commercial Banks – Credit Facilities Directions (2026) introduces a tightly calibrated framework for credit extension to securities‑backed real‑estate vehicles. By insisting on listing status and a minimum three‑year track record with positive cash flow, the RBI seeks to filter out nascent or financially fragile trusts. The aggregate exposure ceiling of 49% is anchored to the REIT’s asset valuation as of the last day of the previous financial year, granting individual banks the discretion to impose stricter limits through board resolutions.
Credit must be extended in the form of conventional term loans. The prohibition of bullet or balloon repayment structures eliminates the risk of a single, large principal outflow at maturity, thereby aligning repayment schedules with the cash‑generating capacity of the underlying properties. Moreover, the central bank mandates vigilant monitoring of end‑use; any allocation toward land acquisition—regardless of its inclusion in a broader development plan—is expressly barred.
Refinancing eligibility is narrowed to projects that have achieved definitive regulatory milestones, namely the issuance of a Completion Certificate (CC) or Occupancy Certificate (OC). This ensures that bank funds support only assets that have demonstrably reached the construction or operational phase.
Internationally, the draft permits foreign branches of Indian banks to fund REITs incorporated abroad, contingent upon the existence of an effective insolvency or bankruptcy framework in the host jurisdiction. Parallel guidelines have been released for Infrastructure Investment Trusts (InvITs), harmonising the regulatory treatment of both investment‑trust categories.
Because REITs operate under trust law, banks are urged to conduct meticulous due‑diligence on the enforceability of security interests before disbursing credit. The overarching objective of the draft is to stimulate structured financing in real‑estate and infrastructure while preserving systemic stability through prudent risk caps.