RBI Issues Draft Directions to Regulate Bank Lending to REITs and InvITs

The Reserve Bank of India (RBI) released the draft of the Reserve Bank of India (Commercial Banks – Credit Facilities) Second Amendment Directions, 2026, on February 13, 2026, vide Circular bearing reference no. RBI/2025-26/DOR.CRE.REC/07.01.001/2025-26 proposing a comprehensive prudential framework for bank lending to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The draft directions are part of a broader set of amendments that also involve concentration risk management and disclosure frameworks and are open for comments from the public till March 6, 2026, and for adoption by banks from July 1, 2026, or earlier if adopted in their entirety.

REITs and InvITs have emerged as pivotal investment vehicles in India, mobilizing capital for income-producing real estate and infrastructure assets. However, their structural form, typically trust-based with underlying Special Purpose Vehicles (SPVs), has posed prudential and legal challenges for direct bank financing. The draft amendments now seek to bridge this gap by explicitly integrating such lending into the commercial bank credit framework under the RBI’s prudential oversight.

Key Elements of the Draft Amendment Directions

1. Inclusion of REITs as Eligible Borrowers: Under the amended directions, REITs/InvITs registered with and regulated by SEBI are expressly permitted borrowers for bank credit facilities. The draft sets out several critical conditions:
   1. Eligibility Criteria: A bank may lend only to a REIT/InvIT that is:

1. 1. 1. Listed on a recognised stock exchange.
      2. Has operated for a minimum of three years with positive net distributable cash flows in the preceding two financial years; and
      3. It has not been subject to material adverse regulatory action in the preceding three years.
   2. Another criterion to be taken into consideration is that the underlying SPVs of the REIT/InvITs should not face any financial difficulty as defined in the RBI (Commercial Banks-Resolution of Stressed Assets) Directions, 2025.
   3. Banks must ensure that the trust deed authorises the borrowing and monitor end-use to prohibit financing of activities such as land acquisition that fall outside permissible norms.
   4. Banks are required to adopt board-approved internal policies covering credit appraisal, underwriting norms, debt service coverage ratio (DSCR) benchmarks, and monitoring mechanisms.
   5. Where the financing extended by banks is for the purpose of refinancing the existing term loans of the SPVs, the same can be undertaken only for those projects that have received the Completion Certificate (CC), Occupancy Certificate (OC), or any equivalent.
   6. The lending shall be only by loans not involving bullet or ballooning principal repayments.
2. Prudential Limits on Exposure: Recognising the systemic risks of concentrated lending, the draft introduces a prudential exposure ceiling on lending to REITs and their underlying SPVs/Holdcos:
   1. The aggregate credit exposure of all banks to a REIT/InvIT and its underlying entities taken together shall not exceed 49% of REIT’s asset value as of March 31 of the previous financial year. In the case of an InvIT, the same threshold applies based on the credit rating of the InvIT or otherwise.
   2. Banks may prescribe a lower internal limit at the board’s discretion, potentially based on credit ratings or risk assessments.
3. Security Coverage and Structuring Requirements: The draft emphasizes robust security coverage to ensure enforceability and recovery:
   1. Bank financing to REITs/InvITs must be fully secured by mortgages of identified assets. The financing against a specified property can be either at the REIT/InvIT level or at the SPV/Holdco level. Where lending is done at the REIT/InvIT level against specified properties, any existing loans at the SPV or Holdco level against those properties must be fully liquidated.
   2. The bank must also create charges over receivables from underlying properties or establish an escrow mechanism to prevent diversion of cash flows, thereby reinforcing debt service certainty.

This layered security framework is designed to provide lenders with enforceable claims and clear priority over trust assets in stressed situations.

By aligning the prudential norms for REITs and InvITs, the RBI is fostering regulatory parity across collective investment trust structures that hold income-producing assets.