Is RBI Set to Enable Bank Financing for REITs?
Synopsis
In a significant move, the RBI is considering allowing commercial banks to lend to REITs, aiming to enhance the real estate financing landscape in India. This decision comes amidst a robust governance framework for listed REITs, promising improved lending opportunities and greater financial flexibility for urban co-operative banks as well.
Key Takeaways
RBI proposes bank lending to REITs.
Strong governance framework supports this move.
NBFCs may see relaxed branch opening rules.
Urban co-operative banks to gain lending flexibility.
Public consultation for draft directions upcoming.
Mumbai, Feb 6 (NationPress) Reserve Bank Governor Sanjay Malhotra revealed on Friday that the Central Bank intends to allow commercial banks to provide financing to Real Estate Investment Trusts (REITs), provided that suitable prudential safeguards are in place.
This initiative is being introduced due to the robust regulatory and governance framework that now exists for listed REITs.
In India, REITs and Infrastructure Investment Trusts (InvITs) were established to liberate banks’ resources in completed and operational real estate and infrastructure projects by refinancing these exposures with pooled funds from both institutional and retail investors. Initially, commercial banks were prohibited from lending to these entities.
Although bank lending to InvITs was permitted later, lending to REITs remained restricted until now. Following a thorough review, and given the strong regulatory and governance framework in place for listed REITs, it is proposed that commercial banks be allowed to finance REITs under appropriate prudential safeguards.
The existing guidelines for lending to InvITs will also be refined to ensure consistency with the proposed prudential safeguards for lending to REITs. Draft directions regarding this will be released soon for public consultation, stated Malhotra.
Additionally, the RBI plans to eliminate the requirement for prior approval to open branches for NBFCs-Investment and Credit Companies (ICCs) that lend against gold collateral. Currently, NBFCs with over 1,000 branches must obtain RBI approval to open new branches.
Given the comprehensive regulatory and governance framework applicable to NBFC-ICCs, the RBI proposes to eliminate the prior approval requirement for these NBFCs. Draft instructions will be issued shortly for stakeholders’ feedback, explained the RBI Governor.
The RBI also aims to enhance the lending capacity and governance of urban co-operative banks.
Recently, various regulatory measures have been implemented to offer greater flexibility to urban cooperative banks (UCBs) in their lending activities. The RBI now proposes to rationalize existing regulatory norms on unsecured loans by UCBs; lending limits for nominal members; and the terms and moratorium requirements for housing loans.
The proposed review will adopt a tiered and simplified approach while upholding prudential discipline, taking into account the growth in total loans and advances of UCBs over the past few years. Draft directions on this matter will be released soon for public consultation, the RBI Governor stated.
Point of View
It is essential to recognize the RBI's proposed measures as a progressive step towards enhancing the financial infrastructure for REITs and urban co-operative banks. This move signifies a commitment to adapt to evolving market conditions while ensuring investor protection through prudential safeguards.
NationPress
20 Jun 2026
Frequently Asked Questions
Why is the RBI allowing banks to lend to REITs?
The RBI aims to enhance financing options for real estate projects, backed by a strong regulatory framework for REITs, facilitating better liquidity and investment opportunities.
What are the implications for urban co-operative banks?
The proposed measures aim to improve the lending capacity and governance of urban co-operative banks, allowing them greater flexibility in their lending operations.
What changes are expected in lending to InvITs?
The RBI plans to harmonize the existing guidelines for lending to InvITs with the proposed safeguards for REITs, ensuring consistency and prudential discipline.
How does this affect NBFCs?
NBFCs engaged in lending against gold collateral will no longer require prior RBI approval to open new branches, streamlining their operations and enhancing growth potential.
