Banks to be allowed to lend directly to REITs, RBI proposes easing norms to support real estate sector

Announcing the outcome of the Monetary Policy Committee (MPC) meeting, the Governor said, "To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards."

He added that the proposal aims to strengthen credit flows to the sector in a calibrated and safe manner.

At present, banks are not permitted to lend directly to the REIT entity and can extend loans only to the underlying special purpose vehicles (SPVs). The proposed change, once implemented, will allow direct bank lending to REITs, marking a significant shift in the regulatory framework governing real estate financing.

The RBI's proposal aims to improve access to finance for REITs, which play a key role in channelising investments into completed, income-generating real estate assets.

By opening a new funding avenue, the move is expected to support liquidity in the sector and strengthen the overall real estate financing ecosystem.

While the RBI has not yet disclosed the detailed framework or the specific prudential safeguards under which such lending will be permitted, the proposed change is being viewed as positive for the real estate sector, as it could help lower borrowing costs for REITs compared to market-based debt or other financing sources. Improved access to bank credit is also expected to enhance liquidity and financial stability within the sector.

Reacting to the announcement, Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India, said that the repo rate continues to remain at its lowest level in the post-pandemic period.

He said, "In addition to the rate actions, the central bank has also eased the rules for bank lending to REITs, which is a positive step considering it will ease their credit access and facilitate access to lower cost funds".

Yash Miglani, Managing Director, Migsun Group, said, "With the repo rate standing at 5.25 per cent, maintaining the status quo will preserve stability in borrowing costs and help keep home loan EMIs largely unchanged, which is essential for steady real estate demand. From a financing standpoint, clarity in monetary policy aids banks and developers in planning credit deployment, managing balance sheets, and ensuring smoother project execution."

Overall, the RBI's proposal signals continued policy support for the real estate sector through targeted regulatory easing, alongside efforts to ensure financial stability through appropriate safeguards. (ANI)