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The Reserve Bank of India has proposed allowing banks to lend to Real Estate Investment Trusts under defined prudential safeguards, marking a shift in its approach to real estate financing. The move follows a review of the regulatory framework for listed REITs and seeks to widen funding avenues for the sector. The RBI also plans to harmonise InvIT lending norms, deepen the corporate bond market through new derivatives, ease foreign exchange rules for authorised dealers, and remove the INR 2.5 lakh crore cap under the Voluntary Retention Route.
The Reserve Bank of India has proposed allowing banks to lend to Real Estate Investment Trusts, subject to defined prudential safeguards, in a move aimed at expanding the funding base for the real estate sector. REITs function as investment platforms that own or manage income-generating properties and distribute earnings to investors, offering exposure to real estate assets without direct ownership. Advertisement
In India, REITs and Infrastructure Investment Trusts were originally designed to release bank capital locked in completed and operational projects by refinancing such assets through pooled investments from institutions and retail investors. In line with this approach, banks were initially not permitted to lend to either structure. While bank lending to InvITs was permitted later, REITs continued to remain outside the scope of bank financing.
The central bank has now indicated that this position is set to change. While presenting the latest bi-monthly monetary policy, RBI Governor Sanjay Malhotra said the proposal is intended to further support financing for the real estate sector by permitting bank lending to REITs under strict safeguards. The RBI's Statement on Developmental and Regulatory Policies noted that the move follows a review of the regulatory and governance framework applicable to listed REITs, which is considered robust.
Alongside this, the RBI plans to align the existing lending guidelines for InvITs with the prudential norms proposed for REITs to ensure parity across both investment vehicles. At present, India has five listed REITs: Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and Knowledge Realty Trust. The central bank has said draft directions on bank lending to REITs will be released shortly for public consultation.
The proposal also builds on policy signals from the Union Budget, where Finance Minister Nirmala Sitharaman had outlined plans to speed up the recycling of real estate assets held by Central Public Sector Enterprises through the creation of dedicated REITs. Such a step is seen as a way to unlock value from mature public sector assets while attracting long-term capital.
Beyond real estate financing, the RBI announced a series of measures aimed at deepening the corporate bond market. It said a well-functioning derivatives market can help manage credit risk more efficiently, improve liquidity, and support bond issuances across different credit ratings. As announced in the Union Budget speech delivered on February 1, 2026, total return swaps on corporate bonds and derivatives linked to corporate bond indices will be introduced.
To support this, the RBI will soon issue a regulatory framework for credit index derivatives and total return swaps on corporate bonds, inviting public feedback. The central bank also proposed revised guidelines for Authorised Dealer banks and standalone primary dealers, allowing greater flexibility in foreign exchange transactions. These entities operate under FEMA, 1999, and access the foreign exchange market for market-making, balance sheet management, and risk hedging.
The RBI said the existing framework governing such authorised dealers has been reviewed and refined to reflect evolving domestic and global market practices. The revised norms are expected to offer more flexibility in foreign exchange products, platforms, and risk management, with draft directions to be released for consultation.
In another key change, the central bank proposed removing the INR 2.5 lakh crore cap on investments under the Voluntary Retention Route. Investments through the VRR will continue to be governed by the overall investment ceilings applicable to each category of securities under the General Route.
Source PTI
FAQ
Q1. What change has the RBI proposed regarding bank lending to REITs?
The Reserve Bank of India has proposed allowing banks to lend to Real Estate Investment Trusts (REITs), subject to defined prudential safeguards. This marks a shift from the earlier regulatory approach, under which banks were not permitted to lend to REITs. The move is aimed at widening funding options for the real estate sector while maintaining financial stability.
Q2. Why were banks earlier restricted from lending to REITs?
REITs and Infrastructure Investment Trusts (InvITs) were initially designed to free up bank capital by refinancing completed and revenue-generating projects through pooled investments from institutions and retail investors. To prevent banks from re-exposing themselves to the same assets, lending to these structures was originally restricted. While bank lending to InvITs was later allowed, REITs remained excluded until now.
Q3. What prompted the RBI to reconsider its stance on REIT lending?
The RBI undertook a review of the regulatory and governance framework applicable to listed REITs and concluded that it is robust. Based on this assessment, the central bank believes that allowing bank lending under strict safeguards can support real estate financing without undermining prudential norms. The proposal was announced as part of the latest bi-monthly monetary policy.
Q4. How will InvIT lending norms be affected by this proposal?
The RBI plans to harmonise the existing bank lending guidelines for Infrastructure Investment Trusts with the proposed norms for REITs. This is intended to ensure regulatory parity between the two investment vehicles and provide a consistent framework for banks lending to pooled infrastructure and real estate assets.
Q5. How does this proposal align with recent Union Budget announcements?
The move complements the Union Budget's emphasis on faster recycling of real estate assets, particularly those held by Central Public Sector Enterprises. The Finance Minister had outlined plans to create dedicated REITs to unlock value from mature assets and attract long-term capital. Allowing bank lending to REITs is expected to strengthen this asset monetisation strategy.
Q6. What other financial market reforms has the RBI announced alongside this move?
In addition to REIT lending, the RBI has proposed measures to deepen the corporate bond market by introducing total return swaps and credit index derivatives. It also plans to ease foreign exchange rules for authorised dealers and remove the INR 2.5 lakh crore cap under the Voluntary Retention Route. These steps are aimed at improving market liquidity, risk management, and capital inflows.
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