RBI Proposes Tighter Lending Norms for REITs and InvITs

The Reserve Bank of India (RBI) has issued draft guidelines allowing banks to lend to SEBI-registered Real Estate Investment Trusts (REITs), but with stricter eligibility conditions. The move aims to ensure financial stability while expanding structured financing options in the real estate and infrastructure sectors.

Under the draft Commercial Banks – Credit Facilities (Second Amendment) Directions, 2026, banks can lend only to REITs that are listed on stock exchanges and have at least three years of operational history with positive cash flows. This requirement is meant to ensure that only financially stable and experienced trusts receive bank funding.

Exposure Limits and Lending Structure

The RBI has proposed that the aggregate credit exposure of all banks to a REIT and its underlying Special Purpose Vehicles (SPVs) or holding companies must not exceed 49% of the value of the REIT’s assets as of March 31 of the previous financial year. Banks may impose even lower limits if decided by their respective Boards.

In addition, lending to REITs can only be in the form of term loans without bullet or balloon repayment structures. This means banks must avoid repayment models where the principal is paid in one large amount at the end of the loan tenure.

Restrictions on End-Use of Funds

The central bank has clearly stated that banks must strictly monitor the end use of funds. Lending through REITs should not be used to finance activities that are not permitted under RBI norms, particularly land acquisition, even if it is part of a larger project.

For refinancing purposes, banks can lend only for completed projects that have received a Completion Certificate (CC), Occupancy Certificate (OC), or equivalent approval.

Overseas Lending Conditions

The draft guidelines also permit overseas branches of Indian banks to lend to REITs established abroad, provided there is an effective insolvency or bankruptcy framework in that jurisdiction.

Similar Norms for InvITs

The RBI has also issued similar updated draft guidelines for bank exposure to Infrastructure Investment Trusts (InvITs), aligning regulatory treatment for both investment vehicles.

Since REITs are structured as trusts, banks are advised to carefully assess legal provisions related to enforcement of security before extending credit.

Overall, the draft guidelines aim to balance growth in structured real estate and infrastructure financing with prudent risk management, ensuring that banks’ exposure remains within controlled limits.