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The Reserve Bank of India (RBI) has proposed allowing banks to lend to Real Estate Investment Trusts (REITs) with safeguards, including a cap of 10% of a bank's eligible capital base and strict monitoring of end use of funds. In a draft circular, the central bank said only listed REITs with at least three years of operations and positive net distributable cash flows in the previous two financial years would be eligible. The RBI also proposed that aggregate exposure to a borrowing REIT and its special purpose vehicles should not exceed 49% of asset value as of March 31 of the previous financial year. The draft norms, open for feedback until March 6, are expected to come into force from July.
India's central bank on Friday proposed permitting banks to lend to Real Estate Investment Trusts (REITs), subject to safeguards including an exposure ceiling of 10% of a bank's eligible capital base and mandatory monitoring of the end use of funds. Advertisement
In a draft circular, the Reserve Bank of India (RBI) said banks would be allowed to lend only to listed REITs that have been operational for at least three years and have reported positive net distributable cash flows in the preceding two financial years.
Additionally, the REIT must not have been subject to any adverse regulatory action in the past three years, the draft said.
The RBI also proposed that the aggregate credit exposure of lenders to a borrowing REIT and its underlying special purpose vehicles (SPVs) together should not exceed 49% of the value of its assets as of March 31 of the previous financial year.
Further, the exposure to a REIT should be capped at 10% of the bank's capital base.
A bank shall strictly monitor the end use of funds lent to REITs to ensure that this route is not being used to finance activities which are not permitted, the RBI said in the draft guidelines.
The central bank had first indicated the move during its monetary policy review last week. The proposed framework is expected to open up an additional funding channel for the REIT sector and support growth in income-generating commercial real estate assets such as office parks and shopping malls.
The RBI has invited stakeholder feedback on the draft circular until March 6, after which the final guidelines are expected to be issued. The norms are slated to take effect from July.
Source - Reuters
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