REITs, InvITs Get Broader Access To Bank Credit As RBI Finalises Lending Framework

The Reserve Bank of India (RBI), on June 10, issued final amendment directions allowing commercial banks to lend to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), while retaining key safeguards related to exposure limits, asset quality and repayment structures.

Overseas Financing Conditions Revised

One of the key changes in the final framework relates to financing through overseas branches of Indian banks. RBI has permitted such branches to participate in financing of REITs under syndication arrangements, subject to certain conditions.

Under the revised directions, the contribution of overseas branches will be capped at 20 per cent of the total financing arrangement, and will attract a risk weight of 150 per cent.

The central bank also updated an earlier proposal which required the existence of an insolvency mechanism in overseas jurisdictions. It has now adopted a broader condition, requiring an effective recovery mechanism to be available in the relevant jurisdiction.

Restrictions On Land Acquisition Remain

RBI has rejected requests from industry participants seeking permission to finance land acquisition and under-construction assets through REITs and InvIT structures.

The regulator reiterated that activities that are not eligible for direct bank financing cannot be funded indirectly through these investment avenues.

The central bank also relaxed an earlier proposal that required underlying assets to have been operational for at least three years. Instead, eligibility will now depend on cash-flow performance. Under the final framework, at least 80 per cent of the underlying assets must generate positive cash flows for a minimum period of one year.

Changes To Acquisition Finance And Exposure Norms

The central bank has also expanded acquisition financing eligibility by allowing REITs, in addition to InvITs, to access bank funding for acquisitions under a revised framework.

At the same time, small finance banks (SFBs) will not be permitted to provide acquisition finance to InvITs.

The RBI has also removed its earlier proposal related to “material adverse regulatory action”. Instead, lenders were directed to evaluate such risks through their due diligence processes.

On stressed assets, RBI partially accepted industry concerns and clarified that financing restrictions would apply to special purpose vehicles (SPVs) already facing financial difficulty under existing stressed asset regulations.

Repayment And Risk Weight Framework Retained

Notably, RBI has retained restrictions on bullet and balloon repayment structures. However, it clarified that repayment schedules may be aligned with cash flows, including step-up repayment arrangements. Investments in bonds and debentures were excluded from these restrictions.

The aggregate exposure of a bank to REITs, InvITs and their underlying entities will continue to be capped at 49 per cent of asset value.

RBI has also revised risk-weight requirements. Exposures to REITs will carry a risk weight of 100 per cent, or 125 per cent where classified as capital market exposure; while exposures to InvITs will attract corporate lending risk weights. The regulator said that these exposures will eventually move to the capital charge framework from April 1, 2027.