RBI Permits Bank Lending to REITs; Industry Expects Cheaper Capital, Faster Growth

Reserve Bank of India (RBI) to change its rule and allow banks to lend to Real Estate Investment Trusts (REITs) directly. The central bank on Friday said that banks would be allowed to lend to real estate investment trusts under prudential safeguards.

“Upon review and considering the presence of strong regulatory and governance framework for listed REITs, it is proposed to permit commercial banks to extend finance to REITs, subject to appropriate prudential safeguards,” RBI governor Sanjay Malhotra said during his post policy statement.

He also added that draft directions in this regard will be issued within a few days for public consultation.

REITs own and manage income-generating assets such as offices and malls. SEBI recently allowed them to be treated as equity, opening the door to mutual fund investments.

Historically, REITs had limited access to bank credit and relied predominantly on capital market instruments such as bonds or NBFC funding.

Industry players said that the move to allow banks to lend money directly to REITs within the rules makes it easier for REITs to raise capital, lowers expenses, and speeds up asset expansion in the office and retail segments.

"This makes these segments more appealing to investors and is positive for the broader real estate financing spectrum. It needs to be accompanied by strong regulatory safeguards on exposure limits, and robust credit underwriting and monitoring practices," said Anuj Puri, Chairman at Anarock Group.

Experts see a threefold impact. "First, it is expected to lower the cost of capital for REITs, as bank funding is typically cheaper and longer-tenor compared to bond or NBFC financing. Second, improved access to bank credit should enhance refinancing flexibility and support incremental acquisitions, thereby aiding portfolio growth and asset recycling. Third, from a systemic perspective, the measure encourages a shift in real estate financing away from development-stage risk towards stabilised, income-generating assets with transparent governance and predictable cash flows," said Vijay Agrawal, MD at Equirus Capital.

In the Union Budget, Finance Minister Nirmala Sitharaman also had proposed to accelerate "recycling" of real estate assets owned by Central Public Sector Enterprises (CPSEs) through the setting up of dedicated REITs.