RBI Introduces Comprehensive Framework for Financing of REITs and InvITs

The Reserve Bank of India (RBI) has introduced a slew of amendments to regulate the lending by banks to infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). Changes have been introduced to the following directions:

• Commercial Banks – Credit Facilities Third Amendment Directions, 2026
• Small Finance Banks – Credit Facilities Second Amendment Directions, 2026
• All India Financial Institutions – Credit Facilities Amendment Directions, 2026
• Commercial Banks – Concentration Risk Management Third Amendment Directions, 2026
• Commercial Banks – Prudential Norms on Capital Adequacy Eighth Amendment Directions, 2026

collectively referred to as the “Amendment Directions”.

A key feature of the Amendment Directions is the formal recognition of lending to InvITs and REITs as a distinct category of financing. Regulated entities are required to formulate board-approved policies governing such lending, including appraisal standards, underwriting norms, debt service coverage ratio (DSCR), exposure limits and monitoring mechanisms. Given that InvIT and REIT valuations are primarily driven by projected cash flows and underlying asset performance, lenders are also required to independently assess the valuation methodologies and assumptions adopted by borrowers.

The amendment directions restrict the financing to listed InvITs and REITs regulated by the Securities and Exchange Board of India (SEBI). Further, not less than 80% of the value of their assets must be invested in completed and income-generating assets that have generated positive operational cash flows for at least one year. Lenders are also required to ensure that the governing trust documents permit the proposed borrowings and do not restrict enforcement of security interests or lender rights.

The Amendment Directions prohibit the deployment of borrowings towards Special Purpose Vehicles (SPVs) that have existing borrowings from regulated entities and are facing financial difficulty under the applicable RBI stressed asset framework, while permitting the refinancing of existing SPV credit facilities relating to completed and operational projects. In the case of REITs, such refinancing is permitted only in respect of projects that have obtained the requisite Completion Certificate, Occupancy Certificate or equivalent approvals.

The Amendment Directions further require financing structures to avoid bullet or ballooning repayments that concentrate principal repayment obligations towards the end of the loan tenure while permitting repayment schedules to be aligned with projected cash flows. This restriction does not apply to investments in bonds, debentures or commercial paper issued by InvITs or REITs.       

A notable feature of the All India Financial Institutions – Credit Facilities Amendment Directions, 2026, is the introduction of a specialised acquisition finance framework for InvITs. The framework enables AIFIs to finance InvITs and eligible holding structures for the acquisition of control in infrastructure assets, subject to prescribed safeguards relating to eligibility, valuation, leverage, security creation and financing limits. The framework requires credit assessment on a pro-forma consolidated basis, prescribes independent valuation requirements for target companies and limits financing to 75% of the independently assessed acquisition value. Acquisition finance may also be refinanced after completion of the acquisition, subject to compliance with the applicable prudential requirements.

The amendment directions introduce safeguards to ensure prudent leverage and effective risk management. Lenders are required to independently assess debt-servicing cash flows and ensure compliance with leverage limits prescribed by SEBI or lower internally prescribed thresholds. Further, the aggregate exposure of all banks to an InvIT or REIT, together with its underlying SPVs and holding companies, cannot exceed 49% of the value of its assets or such lower limit as prescribed by the board. The value of assets is required to be determined in accordance with the applicable SEBI valuation framework.        

Further, financing extended to InvITs or REITs is to be fully secured through appropriate security interests over underlying assets, including immovable properties, receivables, cash flows and equity interests in SPVs, together with contractual protections such as escrow arrangements, cash-flow ringfencing, step-in rights and restrictions on additional indebtedness.

Complementing the lending framework, the Commercial Banks – Concentration Risk Management Third Amendment Directions, 2026, require banks to establish internal exposure limits for the real estate sector and prescribe that aggregate bank exposure to REITs shall not exceed 10% of a bank’s eligible capital base. The Commercial Banks – Prudential Norms on Capital Adequacy Eighth Amendment Directions, 2026, further classify REIT exposures as Commercial Real Estate (CRE) exposures for capital adequacy purposes, attracting the applicable CRE risk weight.

Effective from October 1, 2026, the Amendment Directions establish a comprehensive framework for financing InvITs and REITs, balancing greater access to long-term credit with prudential safeguards relating to leverage, refinancing, acquisition finance, end-use monitoring and security coverage.