RBI Unlocks Bank Credit for Real Estate Investment Trusts in Landmark Move
The Reserve Bank of India (RBI) has ushered in a transformative era for the nation's property sector by authorizing commercial banks to extend direct loans to Real Estate Investment Trusts (REITs) for the very first time. This groundbreaking decision, announced by RBI Governor Sanjay Malhotra during Friday's monetary policy statement presentation, effectively eliminates years of regulatory imbalance between REITs and their infrastructure counterparts, Infrastructure Investment Trusts (InvITs).
Ending Years of Financing Disparity
"To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards," declared Governor Malhotra. This move grants REITs the same bank-borrowing privileges that InvITs have enjoyed since 2019, marking a significant policy harmonization. Previously, REITs were excluded from this financing avenue, forcing them to rely on more expensive and volatile sources such as equity markets, bond issuances, and commercial paper to fuel their growth.
REITs are regulated asset classes that own and operate income-generating real estate properties. They are mandated to distribute at least 90% of their cash flows to unit holders, making them attractive for investors seeking regular income. While India's REIT market has captivated global and domestic institutional investors, it has yet to achieve widespread retail participation.
Key Implications and Market Impact
The RBI's approval is poised to reshape the financial landscape for real estate trusts. The central bank cited the "presence of a strong regulatory and governance framework for listed REITs" as a key factor in its decision. This development is expected to:
- Reduce the weighted-average cost of debt for REITs compared to bonds or commercial paper.
- Provide a more stable and long-term funding source, addressing a historical challenge where debt instruments typically had 3-5 year tenors.
- Support a market whose capitalization is projected to surge to $25 billion by 2030, according to a Vestian report from January 2026.
- Enable REITs to diversify their liability stack and enhance refinancing flexibility, as noted by industry experts.
India's mainboard-listed REITs include prominent names such as Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India Real Estate Trust, Nexus Select Trust, and the recently launched Knowledge Realty Trust. These entities are sponsored by marquee developers and private equity giants like Blackstone, Brookfield, Embassy Group, K Raheja Corp., and Sattva Group.
Prudential Safeguards and Regulatory Harmonization
While the move is widely celebrated, it comes with the caveat of "certain prudential safeguards." The RBI emphasized that draft directions outlining these safeguards and exposure limits will be issued shortly for public consultation. Furthermore, the central bank announced it is harmonizing existing guidelines on lending to InvITs to achieve "parity with prudential safeguards proposed for lending to REITs."
Industry leaders have welcomed the decision but stress the importance of robust oversight. "Permitting banks to lend to REITs signals a maturing financial ecosystem where long-term capital, asset monetization and balance-sheet discipline can coexist," stated Salee S. Nair, Chief Executive at Tamilnad Mercantile Bank. Anuj Puri, Chairman of Anarock Group, added that the success of this initiative hinges on "strong regulatory safeguards on exposure limits, and robust credit underwriting and monitoring practices."
Context and Future Outlook
This policy easing aligns with broader governmental efforts to stimulate the real estate sector. Earlier in February, Finance Minister Nirmala Sitharaman proposed recycling real estate assets held by central public sector enterprises through dedicated REITs as part of the Budget proposals. Additionally, the Securities and Exchange Board of India (SEBI) reclassified REITs as equity-related instruments in November 2025, a move that preceded the RBI's latest announcement.
Despite the optimistic projections, REITs currently represent only about 20% of India's institutional real estate, a figure significantly lower than in mature markets like the US, Singapore, and Japan. The Indian REITs Association highlighted that access to bank credit will facilitate more efficient financing costs and address the challenge of securing long-term funding.
The RBI's decision was unveiled as its Monetary Policy Committee maintained the benchmark lending rate at 5.25% with a neutral policy stance. Governor Malhotra reaffirmed that the Indian economy remains on a strong footing, providing a stable backdrop for this significant sectoral reform. This strategic move is set to catalyze growth, enhance liquidity, and solidify the foundation of India's evolving real estate investment landscape.
