RBI introduces new Credit Facilities rules for Commercial Banks related to REITs and InvITs
The Reserve Bank of India (RBI) has introduced new rules for credit facilities for commercial banks.
A bank may lend only to a Real Estate Investment Trusts (REITs) that satisfies the following conditions:
- The REIT is listed;
- The REIT has at least 80 per cent of its underlying assets generating positive cashflows from operations for a period of not less than one year.
- The bank shall ensure that lending to a REIT is not used to fund its SPVs having existing loans from REs and which are facing financial difficulty, as defined in the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.
- If the purpose of bank financing is refinancing of existing credit facilities of SPVs, then such refinancing shall be undertaken only in respect of credit facilities towards completed projects that have received a Completion Certificate (CC), Occupancy Certificate (OC), or their equivalent.
- The credit facilities extended by a bank to a REIT shall not involve bullet or ballooning repayment structures so as to ensure that a disproportionate portion of principal repayment is not concentrated in the terminal phase of the loan tenure. However, this shall not preclude structuring the repayment schedule in line with projected cash flows.
Provided that, the above restriction shall not be applicable to exposures of a bank to a REIT through its investment portfolio in the form of bonds, debentures, and commercial paper. - The sub-limit for a bank’s aggregate exposure towards real estate investment trusts (REITs) shall be subject to a prudential ceiling of 10 per cent of the bank’s eligible capital base.”
- Exposures to Real Estate Investment Trusts (REITs) shall be treated as Commercial Real Estate (CRE) exposures and shall attract a risk weight of 100 per cent. However, if such exposures qualify as capital market exposures in terms of paragraph 95A of the Reserve Bank of India (Commercial Banks – Concentration Risk Management) Directions, 2025, the applicable risk weight shall be 125 per cent.
- Lending to REITs undertaken by overseas branches of an Indian bank shall attract a risk weight of 150 per cent.”
Security for loans sanctioned to REIT
Bank loans given to a Real Estate Investment Trust (REIT) must be fully secured. This security can include a charge on the underlying property, assignment of rental income and receivables, pledge of the REIT’s ownership stake in the Special Purpose Vehicle (SPV), or any other legally enforceable security.
If the loan is secured by immovable property, the bank must have an exclusive first charge on the property. If multiple lenders are involved, they can share a first pari passu charge, meaning all lenders have equal rights over the property. Such arrangements must be governed by an inter-creditor agreement or a similar agreement among the lenders.
Importantly, creating a charge on the underlying property is mandatory whenever the loan is used for:
- Purchasing a property,
- Developing a property, or
- Refinancing debt that was originally taken for purchasing or developing a property.
This requirement applies regardless of how the transaction is structured.
For this purpose, the term property acquisition is interpreted broadly. It includes not only the direct purchase of a property by a REIT but also indirect acquisition. For example, if a REIT buys shares of an SPV or acquires ownership in another entity that owns a property (directly or through other entities), it will still be treated as acquisition of the underlying property. Therefore, the property must be offered as security to the lending bank.
Lending to InvITs
A bank may lend only to an InvIT which is listed. A bank shall strictly monitor the end use of funds lent to InvITs to ensure that this route is not being used to finance activities which are not directly permitted to be financed under the extant regulations.
Security for loans sanctioned to InvITs
Bank loans given to an Infrastructure Investment Trust (InvIT) must be fully secured. The security can include a charge on the underlying infrastructure asset, assignment of project cash flows and receivables, pledge of the InvIT’s stake in the relevant Special Purpose Vehicle (SPV), and other legally enforceable security arrangements.
If the loan is secured by immovable property, the bank must have an exclusive first charge on the asset. If more than one lender is involved, the lenders may share a first pari passu charge, giving them equal rights over the asset. Such arrangements must be governed by an inter-creditor agreement or a similar agreement among the lenders.
The loan agreement must also provide strong protection to the lending bank. This should include:
- An escrow account to ensure project cash flows are used properly.
- Protection for lenders if the project ends early, such as lender step-in rights or guaranteed termination payments.
- Restrictions on the borrower and SPVs from taking actions that could harm lenders, such as raising additional debt without the approval of existing lenders.
These RBI directions will come into effect from October 1, 2026. However, banks may implement them earlier if they adopt all the changes before that date.
For existing loans to InvITs that do not meet the new rules, banks can allow those loans to continue until they mature. However, after such loans expire, banks cannot renew, extend, review, or increase the loan limits unless the loans are brought into compliance with the new RBI guidelines. This restriction applies even if the original loan agreement contains a provision allowing renewal.
Click here to download RBI Circular on Credit Facilities
Click here to download RBI Circular on Concentration Risk Management
Click here to download RBI Circular on Prudential Norms on Capital Adequacy
