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RBI Allows Direct Bank Loans to REITs, Boosting Real Estate Growth

The Indian REITs Association has strongly endorsed the Reserve Bank of India's decision to allow banks to lend directly to Real Estate Investment Trusts. Announced by RBI Governor Sanjay Malhotra, this policy is seen as a crucial step in providing REITs with stable, long-term capital aligned with their income-generating assets. The move is expected to lower borrowing costs and ease the challenge of securing long-duration funding, which is currently difficult through shorter-term debt instruments. Ultimately, this greater financial flexibility will help REITs expand their portfolios and contribute to a more formalized commercial property market in India.

Key Points: RBI Permits Direct Bank Lending to Indian REITs

  • RBI permits direct bank lending to REITs
  • Provides stable, long-term capital for commercial real estate
  • Expected to lower financing costs for trusts
  • Supports portfolio expansion and market formalization
  • Addresses challenge of long-term funding
2 min read

"This landmark move for REITs supports their long-term growth"; Indian REITs Association hails RBI's move to allow direct bank loans

The Indian REITs Association hails RBI's policy shift allowing direct bank loans, promising stable long-term funding and lower costs for the sector.

"This landmark move strengthens the financial framework for REITs and supports their long-term growth. - Indian REITs Association"

New Delhi, February 10

The Indian REITs Association has expressed strong support for the Reserve Bank of India's recent decision to permit banks to lend money directly to Real Estate Investment Trusts.

Announced by RBI Governor Sanjay Malhotra during the latest Monetary Policy Committee meeting, this policy shift is expected to provide the commercial real estate sector with much-needed access to stable, long-term capital. According to the association, "This landmark move strengthens the financial framework for REITs and supports their long-term growth."

A major highlight of this decision is the stability it brings to how REITs manage their money. Because these trusts own large assets like office buildings and malls that earn income over many years, they need borrowing options that match those long timelines.

The IRA pointed out that having "direct access to bank lending provides REITs with a stable, long-term source of funding." They noted that this change is crucial because it expands "the avenues of fund raising for these instruments," which is essential for an asset class built on "long-duration, income-generating real estate."

The association also believes that being able to borrow from banks will lead to lower interest costs. Currently, many REITs raise money by issuing debt securities to investors like mutual funds or non-banking financial companies. These investors usually prefer shorter commitments of three to five years, which makes it difficult for REITs to secure money for the long haul.

The IRA explained that "the ability to borrow at the REIT level is also expected to result in more efficient financing costs," especially since "long term funding remains a challenge" under the current system.

Ultimately, the industry sees this as a step toward making India's real estate market more professional and institutionalised. With the new flexibility to borrow from banks, REITs will be in a better position to buy more properties and grow their portfolios. The association stated that with this "greater financial flexibility," REITs will be "better positioned to support portfolio expansion and contribute to the formalisation" of the country's commercial property sector.

- ANI

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Reader Comments

S
Sarah B
As someone who invests in REITs for passive income, this is very encouraging news. Long-term funding has been a real issue. Hopefully, this leads to more high-quality commercial properties being added to REIT portfolios.
V
Vikram M
Good step for institutional investors, but what about the average retail investor? I hope this "professionalisation" also brings more transparency and simpler ways for the common man to invest in real estate assets.
R
Rohit P
Finally! The mismatch between 3-5 year debt and 20+ year assets was a major headache. Banks lending directly makes perfect sense. This should boost confidence in the entire sector. 🏢
P
Priya S
While this is positive, I hope the RBI and banks put strong risk assessment frameworks in place. We don't want a situation where banks are overexposed to commercial real estate if there's a downturn. Prudent lending is key.
K
Karthik V
This is a landmark decision indeed. It formalizes a crucial funding channel. More institutional money in real estate can improve the quality of our office spaces and malls, which is good for the overall economy.

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