The Reserve Bank of India on Thursday allowed banks to invest in real estate investment trusts (REIT) and infrastructure investment trusts (InvIT), a move that is expected to help the cash-starved infrastructure sector.

Banks are allowed to invest in equity-linked mutual funds, venture capital funds and equities to the extent of 20% of their Net Owned Fund.

Sachin Sandhir, global MD, emerging business, RICS, told FE: “India’s REIT potential is quite large but it has not yet taken off. Banks’ involvement will help the commercial real estate segment by bringing in much-needed liquidity. It will set the momentum going for these instruments.”

Surendra Hiranandani, CMD at House of Hiranandani, concurred saying it would improve liquidity, which could lower capital costs for developers in the commercial segment.

Shishir Baijal, CMD at Knight Frank India, said the easing of norms was a good step for banks which would have one more asset class in which to invest while the real estate sector would get access to institutional capital.

“This is a landmark decision. It will allow greater institutional participation in the real estate sector. Banks will now have route to investment into real estate, in turn helping the liquidity within the sector,” Cushman & Wakefield managing director India Anshul Jain said.

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Naredco chairman and DLF CEO Rajeev Talwar said, “this step now has the potential to usher-in large number of REITs’ listing in India by offering a safe asset class to invest in and also provide competition to foreign institutions. For banks it offers an additional important asset class for investing.”

“We now look forward to detailed norms and guidelines for banks’ investment in REITs by May end,” Talwar added. Industry body FICCI president Pankaj Patel said the decision is encouraging and should offer a good source of liquidity for the real estate companies.

“We look forward to the detailed guidelines on this subject by the RBI as well as further instructions and final guidelines with regard to merchant discount rate for debit card transactions,” Patel added.

Assocham president Sandeep Jajodia said this would give a boost to the sector which has been witnessing tough times in the last few years (with inputs from PTI).