RBI caps banks' exposure to listed Reits at 10%
MUMBAI: The Reserve Bank has proposed to cap a bank’s lending to real estate investment trusts (Reits) at 10% of its eligible capital base along with other safeguards such as mandatory monitoring of the end-use of the fund and making only listed trusts eligible for bank funds. The new policy will be effective from July.
A Reit is an entity that owns and manages income-generating real estate assets such as malls and offices. These entities pool money from investors, like mutual funds, to invest in properties and distribute the income as dividends.
"Banks shall be permitted to lend to listed Reits which are registered with and regulated by Sebi," said the draft RBI (commercial banks –credit facilities) second amendment directions, 2026 issued Friday.
The draft has also proposed to cap the exposure at 10% of the bank's capital base and loans will be capped at 49% of the asset value.
The draft further said banks can lend only to listed Reits with a minimum three years of operations and a positive net distributable cash flows in the preceding two financial years. The entity should also not have been subject to any adverse regulatory action during the previous three years, the central bank said.
At present, there are only five listed Reits--Brookfield, Embassy Office Parks, Mindspace Business Parks, Nexus Select, and Knowledge Realty.
The regulator further said the aggregate credit exposure of lenders to the borrowing Reits and its underlying special purpose vehicles together should not exceed 49% of the value of its assets as on March 31 of the previous financial year.
"The aggregate credit exposure of all banks to the borrowing Reit and its underlying SPVs/holding company taken together, shall not exceed 49% of the value of the Reit's assets as on March 31st of the previous financial year, or such lower limit as may be decided by the bank's board based on the credit rating of the Reit or otherwise," the draft said.
"A bank shall strictly monitor the end use of funds lent to Reits to ensure that this route is not being used to finance activities which are not permitted," said the draft guidelines.
"Lending to a Reit by a bank shall only be by way of loans not involving bullet or ballooning principal repayments," said the draft on which the RBI has sought comments till March 6.
The RBI had first announced the move in its monetary policy review last week. The proposed opening of the sector to bank credit is expected to spur fresh funding into the sector and stoke growth.
Currently, banks provide credit to infrastructure investment trusts (Invits), which are similar to Reits.
Reits and Invits were conceptualised with a view to free up banks' funds in completed and operational real estate and infrastructure projects by refinancing such exposures with pooled funds of institutional as well as retail investors.
The draft also proposes to harmonise existing guidelines in respect of lending to Invits for parity with prudential safeguards proposed for lending to Reits, considering the similarity in organisational structure and risks.