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The Reserve Bank of India has mandated that all loans to REITs and InvITs must be fully secured and repaid in line with cash flows, banning bullet or ballooning structures.
The Reserve Bank of India on Wednesday issued the Third Amendment Directions, 2026 to the Commercial Banks - Credit Facilities framework, providing a clearer rulebook for bank lending to Real Estate Investment Trusts and Infrastructure Investment Trusts while tightening oversight. Under the revised norms, banks can lend only to REITs and InvITs that are registered with and regulated by SEBI and listed on recognised stock exchanges. For overseas branches of Indian banks, an exemption applies for syndicated lending to foreign-listed REITs if the bank's share is <=20% of the deal, provided the REIT is regulated and listed in that jurisdiction. The central bank has directed lenders to put in place Board-approved policies for exposure to REITs and InvITs. These must cover credit appraisal, sanctioning conditions, underwriting norms including debt service coverage ratio benchmarks, internal limits for single and aggregate exposures, and monitoring through covenants. To ensure banks fund only mature assets, RBI has stipulated that at least 80% of a REIT's underlying assets must be generating positive cash flows for 1+ years. For InvITs, not less than 80% of asset value must be in completed, revenue-generating infrastructure projects with positive cash flows for 1+ year. Banks must also ensure loans are not used to refinance SPVs facing financial stress, and refinancing is allowed only for completed projects with occupancy/completion certificates. To contain concentration risk, RBI capped aggregate exposure of all banks to a borrowing REIT or InvIT, including its SPVs and holding companies, at 49% of the entity's gross asset value, or a lower limit set by the bank's Board. Banks must also assess sufficiency of cash flows to ensure timely debt servicing. Further strengthening safeguards, RBI mandated that loans must be fully secured by charge on underlying property/infrastructure, assignment of rental/toll cash flows, pledge of SPV equity, and escrow accounts to ringfence cash flows. For property acquisition/development, an exclusive first charge or first pari passu charge is mandatory. Existing InvIT loans not complying with these norms can run till maturity, but banks cannot renew or enhance them unless compliant. The directions come into force from 1 Oct 2026, or earlier if adopted by banks. The move balances credit access for cash-generating trusts with financial stability, aligning bank lending with the REIT/InvIT model of holding stable, income-producing assets. (ANI)
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