Reserve Bank of India Issues Amendment Directions for Commercial Banks Lending to REITs and InvITs
The Reserve Bank of India (RBI) has issued final amendment directions permitting commercial banks to lend to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), while maintaining key prudential safeguards on exposure limits, asset quality, and repayment structures.
The RBI has incorporated feedback received from stakeholders on the draft norms, resulting in several major changes.
Main Changes to the Directions
- Overseas branches of Indian banks may participate in REITs financing under syndication arrangements, subject to a 20 per cent cap on contribution and a 150 per cent risk weight.
- The requirement for an insolvency mechanism was replaced with a broader "effective recovery mechanism" condition in overseas jurisdictions.
- Financing of land acquisition and under-construction assets through REIT and InvITs structures remains prohibited, as activities not permitted directly cannot be financed indirectly.
Relaxation of Eligibility Norms
- The RBI has relaxed the earlier three-year operational requirement by linking it to the cash-flow performance of underlying assets.
- At least 80 per cent of underlying assets must generate positive cash flows for at least one year.
Revised Framework for Acquisition Finance
- REITs, in addition to InvITs, are permitted to access bank funding for acquisitions under a revised framework.
- Small finance banks are barred from extending such facilities to InvITs.
Exposure and Risk Weights
- Aggregate bank exposure to REITs and InvITs and their underlying entities will remain capped at 49 per cent of asset value.
- Risk weights have been revised, with REIT exposures set at 100 per cent (or 125 per cent if classified as capital market exposure), while InvIT exposures will attract corporate lending risk weights.
- Exposures will ultimately shift to the capital charge framework effective April 1, 2027.