RBI permits banks to lend only to SEBI-Registered REITs & InvITs; 80% cash-generating assets mandatory
New Delhi, June 10
The Reserve Bank of India has mandated that all loans to REITs and InvITs must be fully secured and repaid in line with cash flows, banning bullet or ballooning structures.
The Reserve Bank of India on Wednesday issued the Third Amendment Directions, 2026 to the Commercial Banks - Credit Facilities framework, providing a clearer rulebook for bank lending to Real Estate Investment Trusts and Infrastructure Investment Trusts while tightening oversight.
Under the revised norms, banks can lend only to REITs and InvITs that are registered with and regulated by SEBI and listed on recognised stock exchanges. For overseas branches of Indian banks, an exemption applies for syndicated lending to foreign-listed REITs if the bank's share is <=20% of the deal, provided the REIT is regulated and listed in that jurisdiction.
The central bank has directed lenders to put in place Board-approved policies for exposure to REITs and InvITs. These must cover credit appraisal, sanctioning conditions, underwriting norms including debt service coverage ratio benchmarks, internal limits for single and aggregate exposures, and monitoring through covenants.
To ensure banks fund only mature assets, RBI has stipulated that at least 80% of a REIT's underlying assets must be generating positive cash flows for 1+ years. For InvITs, not less than 80% of asset value must be in completed, revenue-generating infrastructure projects with positive cash flows for 1+ year. Banks must also ensure loans are not used to refinance SPVs facing financial stress, and refinancing is allowed only for completed projects with occupancy/completion certificates.
To contain concentration risk, RBI capped aggregate exposure of all banks to a borrowing REIT or InvIT, including its SPVs and holding companies, at 49% of the entity's gross asset value, or a lower limit set by the bank's Board. Banks must also assess sufficiency of cash flows to ensure timely debt servicing.
Further strengthening safeguards, RBI mandated that loans must be fully secured by charge on underlying property/infrastructure, assignment of rental/toll cash flows, pledge of SPV equity, and escrow accounts to ringfence cash flows. For property acquisition/development, an exclusive first charge or first pari passu charge is mandatory.
Existing InvIT loans not complying with these norms can run till maturity, but banks cannot renew or enhance them unless compliant. The directions come into force from 1 Oct 2026, or earlier if adopted by banks.
The move balances credit access for cash-generating trusts with financial stability, aligning bank lending with the REIT/InvIT model of holding stable, income-producing assets.
— ANI
Reader Comments
Finally some clarity! As a small investor in InvITs, I've always worried about how much bank debt is behind these structures. If lending is now tied to actual cash flows, it means more stability for unit holders. But I wish the 49% aggregate exposure cap was lower - 40% would be safer in my opinion.
Good regulations generally, but the October 2026 timeline gives banks plenty of time to adjust. My concern is that smaller REITs and InvITs with less than 80% stabilized assets might struggle to find financing now. Could slow down the growth of the market in the short term.
This is exactly what Indian real estate needs - more discipline. REITs have been a game-changer for retail investors like me who couldn't afford a whole property. Now with banks lending responsibly, the whole ecosystem becomes more trustworthy. Just hope the compliance burden doesn't make things too expensive for the trusts.
RBI is learning from past mistakes - no more Evergreening or circular lending. Making SPV equity pledges mandatory and capping aggregate exposure at 49% is smart. But why only listed REITs? Private REITs also need capital. Feels like the regulator is favoring the stock exchange route which may not suit all investors. 🧐
I work in infrastructure finance and this is going to change our deal flow significantly. The 80% completed and cash-flowing requirement for InvITs means no more funding for greenfield projects through this route. That's both good (less risk) and challenging (innovation funding dries up). A balanced approach would have
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