Bank lending to REITs to improve access to long-term funds, lower borrowing costs

The RBI's new framework allows banks to lend directly to SEBI-registered REITs, improving access to long-term capital, lowering borrowing costs, and reducing reliance on corporate bonds. Effective October 1.

Written by Kshipra Petkar

Updated: June 16, 2026 05:27 IST

The aggregate exposure of all banks to a REIT, along with its underlying special purpose vehicles (SPVs) and holding companies, has been capped at 49% of the trust's asset value. The norms will come into effect from October 1, or earlier if adopted by banks.

The Reserve Bank of India’s (RBI) decision to allow banks to lend directly to Real Estate Investment Trusts (REITs) is expected to improve access to long-term capital, lower borrowing costs and reduce the sector’s dependence on the corporate bond market, according to the Indian REITs Association (IRA).

The RBI on Wednesday issued a framework permitting banks to lend directly to REITs and Infrastructure Investment Trusts (InvITs). Under the norms, banks can lend only to Sebi-registered REITs with at least 80% of their underlying assets generating positive cash flows for at least one year.

The aggregate exposure of all banks to a REIT, along with its underlying special purpose vehicles (SPVs) and holding companies, has been capped at 49% of the trust’s asset value. The norms will come into effect from October 1, or earlier if adopted by banks.

Until now, banks could lend only to the SPVs that own REIT assets, while borrowing at the trust level was largely through bond issuances. Since most investors in the bond market prefer three- to five-year instruments, raising long-term debt has remained a challenge.

“One of the biggest advantage of the reform is that we will now be able to access long-term debt, which was otherwise not easily available at REIT level. This will also help us obtain working capital facilities at the REIT level,” Preeti Chheda, CFO, Mindspace REIT and Executive Committee Member, Indian REITs Association said.

According to Chheda, borrowing at the REIT level is typically 50-70 basis points cheaper than lease rental discounting (LRD) loans raised at the SPV level because of diversification of risk for the lenders at the REIT level and AAA rating which REITs have.

“Since the repayment obligation is that of the REIT, which receives cashflows from all the SPVs before distributions are made, risk for lenders is diversified. Also, REITs are generally AAA rated which also gives lenders better comfort and translates into better pricing,” she said. Chheda also said the move also brings REITs on par with Infrastructure Investment Trusts (InvITs), which have already been allowed to borrow directly from banks.

India currently has five listed REITs — Brookfield India Real Estate Trust, Embassy Office Parks REIT, Knowledge Realty Trust, Mindspace Business Parks REIT and Nexus Select Trust.

This article was first uploaded on June fifteen, twenty twenty-six, at thirty-one minutes past eight in the night.