NewKerala.com

RBI Allows Banks to Lend Directly to REITs, Boosting Real Estate Finance

The Reserve Bank of India has proposed a significant regulatory shift to allow banks to lend directly to Real Estate Investment Trusts (REITs), a move currently not permitted. This aims to strengthen credit flows and improve financing access for the real estate sector in a calibrated manner. Industry experts view the change positively, noting it will ease credit access and potentially lower funding costs for REITs compared to market debt. The proposal, announced alongside the MPC decision to hold rates, signals continued policy support for real estate while incorporating prudential safeguards.

Key Points: RBI Proposes Direct Bank Lending to REITs to Ease Sector Finance

  • Direct bank lending to REITs proposed
  • Aims to improve sector liquidity & credit flow
  • Expected to lower REIT borrowing costs
  • Includes prudential safeguards for safety
3 min read

Banks to be allowed to lend directly to REITs, RBI proposes easing norms to support real estate sector

RBI Governor proposes letting banks lend directly to REITs to improve real estate sector financing access, liquidity, and lower borrowing costs.

Banks to be allowed to lend directly to REITs, RBI proposes easing norms to support real estate sector
"To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards. - RBI Governor Sanjay Malhotra"

Mumbai, February 6

The Reserve Bank of India Governor Sanjay Malhotra on Friday said that banks will be allowed to lend directly to Real Estate Investment Trusts, as the central bank moves to improve financing access for the real estate sector.

Announcing the outcome of the Monetary Policy Committee (MPC) meeting, the Governor said, "To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards."

He added that the proposal aims to strengthen credit flows to the sector in a calibrated and safe manner.

At present, banks are not permitted to lend directly to the REIT entity and can extend loans only to the underlying special purpose vehicles (SPVs). The proposed change, once implemented, will allow direct bank lending to REITs, marking a significant shift in the regulatory framework governing real estate financing.

The RBI's proposal aims to improve access to finance for REITs, which play a key role in channelising investments into completed, income-generating real estate assets.

By opening a new funding avenue, the move is expected to support liquidity in the sector and strengthen the overall real estate financing ecosystem.

While the RBI has not yet disclosed the detailed framework or the specific prudential safeguards under which such lending will be permitted, the proposed change is being viewed as positive for the real estate sector, as it could help lower borrowing costs for REITs compared to market-based debt or other financing sources. Improved access to bank credit is also expected to enhance liquidity and financial stability within the sector.

Reacting to the announcement, Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India, said that the repo rate continues to remain at its lowest level in the post-pandemic period.

He said, "In addition to the rate actions, the central bank has also eased the rules for bank lending to REITs, which is a positive step considering it will ease their credit access and facilitate access to lower cost funds".

Yash Miglani, Managing Director, Migsun Group, said, "With the repo rate standing at 5.25 per cent, maintaining the status quo will preserve stability in borrowing costs and help keep home loan EMIs largely unchanged, which is essential for steady real estate demand. From a financing standpoint, clarity in monetary policy aids banks and developers in planning credit deployment, managing balance sheets, and ensuring smoother project execution."

Overall, the RBI's proposal signals continued policy support for the real estate sector through targeted regulatory easing, alongside efforts to ensure financial stability through appropriate safeguards.

- ANI

Share this article:

Reader Comments

P
Priya S
Good step, but the 'prudential safeguards' are key. We've seen what happens when real estate lending gets too loose. RBI must ensure banks don't overexpose themselves. The focus should remain on completed, income-generating assets, not speculative projects.
R
Rohit P
Finally some sense! The old rule of lending only to SPVs was creating unnecessary complexity and cost. This simplification will reduce borrowing costs for REITs, which should benefit the entire commercial real estate ecosystem. More office parks and malls getting built efficiently is good for the economy.
S
Sarah B
As someone who invests in REITs for passive income, this is welcome news. Lower financing costs for the trust should mean better distributions for unit holders like me. Hope the banks offer competitive rates.
K
Karthik V
The real test will be in the execution. Will public sector banks be as proactive as private ones in lending to REITs? And will this ease of funding trickle down to benefit the residential sector, or will it remain confined to commercial projects? Time will tell.
M
Meera T
A calibrated move, as the Governor said. It shows RBI is thinking of growth without compromising stability. After the IL&FS and DHFL episodes, we need such careful easing. This could make REITs a more attractive asset class for retail investors looking beyond FDs and stocks. 🏢

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50