Summary of this article
RBI has allowed commercial banks to lend directly to REITs and harmonised lending norms for InvITs, expanding formal credit access for these investment vehicles.
Direct bank financing is expected to lower borrowing costs for REITs, reduce dependence on capital markets, and improve distributable cash flows.
The move is likely to strengthen liquidity in the commercial real estate sector and accelerate growth across office and retail assets.
Increased parity with listed entities and improved yields could boost retail investor participation and confidence in the REIT market.
The Reserve Bank of India’s Monetary Policy Committee (MPC), in its meeting on Friday, permitted commercial banks to extend finance to Real Estate Investment Trusts (REITs), subject to appropriate prudential safeguards. The existing guidelines in respect of lending to Infrastructure Investment Trusts (InvITs) are also being harmonised for parity.
According to industry experts, this will help not only real estate firms to broaden their access to credit, but it will also help banks to diversify their investment portfolio by including more income-generating assets.
Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, said, “RBI Governor Sanjay Malhotra's announcement that banks are now permitted to lend directly to REITs is likely to be a major boost to these instruments, and make it easier for the trusts to raise funds at relatively cheaper rates. Banks were generally restricted from lending directly to the REITs and they had to borrow through their Special Purpose Vehicles (SPVs) or rely on issuing bonds and raising equity in the capital markets.”
With bank lending now available, REITs may now have a diversified funding base, making them less vulnerable to capital market volatility. Moreover, they may now easily refinance existing higher-cost debt with more stable bank loans, improving their distributable cash flows.
Magazine added: “Along with the FM's announcement in Budget 2026 on including CPSE assets under the REIT structure, and their recent reclassification as 'equity-related', this asset class is poised to witness high growth in coming months.”
Vimal Nadar, National Director & Head, Research at Colliers India said the RBI’s approval for banks to lend directly to REITs expands their financing options beyond capital markets, offering lower, stable, competitive, long-term funding for acquisitions and portfolio growth.
Moreover, the increasing parity in treatment of REITs with listed entities is likely to accelerate the expansion of REITs across real estate asset classes and strengthen retail investor participation as the potential returns are likely to increase.
“As per Colliers’ estimates, the market for commercial office REITs has the potential to grow to more than 500 mn sq ft from the currently listed of about 130 mn sq ft. With REITs in India mandated to distribute at least 90 per cent of net distributable cashflows to investors, average dividend yields of listed REITs can increase in the next few years driven by lower credit cost in addition to other market related performance indicators. Thus, the relative attractiveness of REIT as an equity instrument is expected to improve for a retail investor in the coming years,” said Nadar.
This reform is expected to significantly improve liquidity in the commercial real estate sector while reducing the overall cost of capital.
Shrinivas Rao, CEO, Vestian, said, “Easier access to funding will accelerate construction and investment activity nationwide, creating a virtuous growth cycle for the sector. In the near term, office and retail assets are likely to see heightened traction, driven by increased participation from retail investors and renewed confidence in the REIT market."
The Indian real estate sector has showcased significant growth, backed by favourable economic factors leading to strengthened liquidity in the hands of the masses, thus inspiring homebuyers to upgrade to a better living. “Parallelly, allowing banks to lend to REITs will go a long way in instilling confidence, especially in overseas investors, ultimately boosting FDI inflows into the country. Going forward, as India continues on its growth charter, residential real estate is increasingly emerging as a preferred investment avenue, given the factors including security. We are optimistic about the growth environment continuing to flourish on the back of a supportive economic growth that will encourage the RBI to ease further the repo rate, which will boost housing demand,” said Nitin Bavisi, CFO, Ajmera Realty.
