In a move aimed at deepening the financing pool for India’s real estate sector, the Reserve Bank of India (RBI) has proposed allowing banks to lend to Real Estate Investment Trusts (REITs). The step is expected to help REITs raise long-term capital at a more efficient cost, supporting their growth and potentially boosting income for unitholders.
On 6 February, the RBI said it plans to permit commercial banks to extend finance to REITs, subject to prudential safeguards. In its Statement on Developmental and Regulatory Policies, the central bank noted that the proposal follows a review of the sector and takes into account the strong regulatory and governance framework in place for listed REITs.
What are REITs?
REITs are investment vehicles that own or operate income-generating real estate, enabling investors to earn a share of the income produced without directly purchasing properties. At present, there are five listed REITs in India- Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and Knowledge Realty Trust. Nexus Select Trust has a portfolio of rent-yielding retail real estate properties, while the other four REITs hold office assets.
This is what experts have to say
Amit Shetty, CEO, Embassy REIT, said that the policy step is expected to “enhance access to long-term, stable financing for REITs, complementing traditional capital market funding and broadening the financing ecosystem for income-producing real estate. It further validates the thesis that REITs are long-term capital structures of the highest credit quality, deserving of robust financing from banks. This policy will help expand access to longer-term, competitive bank finance, which will support healthier balance sheets and stable growth by reducing the need for frequent refinancing.”
Anuj Puri, Chairman, ANAROCK Group, said, “The move is expected to make it easier for REITs to raise capital, lower expenses, and speed up asset expansion in the office and retail segments. This is likely to make these segments more appealing to investors and is positive for the broader real estate financing spectrum. Having said that, it needs to be accompanied by strong regulatory safeguards on exposure limits, and robust credit underwriting and monitoring practices.”
Shrinivas Rao, FRICS, CEO of Vestian, said that the RBI’s proposal is expected to eliminate the need to route funding through SPVs. This reform is expected to significantly improve liquidity in the commercial real estate sector while reducing overall capital costs. Easier access to funding will accelerate construction and investment activity nationwide, creating a virtuous growth cycle for the sector. In the near term, office and retail assets are likely to see heightened traction, driven by increased participation from retail investors and renewed confidence in the REIT market.
Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India, said, “Indian REITs, with approximately $27 bn of AUM across office and retail segments, have historically relied on capital market issuances and sponsor-backed financing, and access to bank credit will serve as an additional funding avenue that diversifies the liability stack and enhances refinancing flexibility. The move reinforces regulatory confidence in listed real estate vehicles and should strengthen liquidity and depth in India’s real estate investment market.”
Commenting on the proposal, the Indian REITs Association (IRA) hailed the RBI’s decision to allow banks to lend directly to REITs, saying this landmark move strengthens the financial framework for REITs and supports their long-term growth.
“Direct access to bank lending provides REITs with a stable, long-term source of funding, expanding the avenues of fundraising for these instruments. This is particularly important for an asset class built on long-duration, income-generating real estate,” it added.
