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The Reserve Bank of India's proposal to allow banks to lend directly to Real Estate Investment Trusts (REITs) has been welcomed by industry stakeholders, who said the move would expand long-term funding options and lower financing costs. The central bank has proposed the change with prudential safeguards, aiming to deepen the financing pool for the real estate sector. Industry bodies and REIT executives said direct access to bank finance would complement capital market borrowings and address the challenge of long-tenor funding, which remains limited under the current debt-issuance model. The move is also expected to strengthen balance sheets, support portfolio expansion, and potentially improve income distribution to unitholders. India currently has five listed REITs, primarily focused on office and retail assets.
The Reserve Bank of India's proposal to allow banks to lend directly to Real Estate Investment Trusts (REITs) is expected to improve access to long-term capital and support the sustained growth of the asset class, according to industry participants. The central bank, in its Statement on Developmental and Regulatory Policies, said commercial banks may be permitted to extend finance to REITs after a review, taking into account the strong regulatory and governance framework applicable to listed trusts. Advertisement
Industry representatives said the move would significantly deepen the financing pool available to REITs, which currently rely largely on capital market instruments such as debt securities subscribed by mutual funds, non-banking financial companies and other institutional investors. Since these investors typically prefer tenors of three to five years, accessing longer-duration funding has remained a structural challenge for REITs holding income-generating assets with much longer life cycles.
The Indian REITs Association said direct access to bank lending would provide REITs with a stable and long-term source of funding, which is particularly important for an asset class built around predictable rental income. It added that borrowing at the REIT level could also lead to more efficient financing costs, supporting healthier balance sheets and enabling steady portfolio expansion.
India currently has five listed REITs: Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust and Knowledge Realty Trust. While Nexus Select Trust focuses on rent-yielding retail assets, the remaining trusts primarily hold office portfolios. Under existing regulations, at least 90 per cent of rental income generated by REITs is distributed to unitholders.
Knowledge Realty Trust, backed by Sattva Group and Blackstone, said aligning REIT lending norms with those applicable to Infrastructure Investment Trusts would bring greater clarity and reinforce strong governance standards, while supporting growth within a well-defined framework.
Embassy REIT said the proposed policy change would complement traditional capital market funding by broadening the overall financing ecosystem for income-producing real estate. It added that access to competitive, longer-term bank finance could help REITs pursue strategic objectives more effectively and, over time, deliver more stable returns to unitholders.
Source - PTI
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