RBI issues draft amendment directions permitting bank lending to REITs and harmonizing InvIT lending norms

Pursuant to issuance of the Statement on Developmental and Regulatory Policies on February 6, 2026, the Reserve Bank of India (RBI) has issued draft Reserve Bank of India (Commercial Banks – Credit Facilities) Second Amendment Directions, 2026 dated February 13, 2026 (Draft Amendment Directions) to recalibrate the prudential framework governing lending to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The Draft Amendment Directions are part of a broader set of amendments issued by the RBI that also involve concentration risk management and disclosure frameworks and are open for stakeholder consultation till March 6, 2026.

 Key highlights of the proposals in the Draft Amendment Directions are outlined below: 

1. Enabling bank finance to REITs with prudential safeguards:

• • The Draft Amendment Directions propose an explicit permission for commercial banks to extend finance to REITs subject to appropriate prudential safeguards, including a regulatory ceiling on exposure to REITs.

• • The aggregate exposure of a bank to a REIT (including its underlying special purpose vehicles (SPVs) and holding companies) must not exceed 10% of the bank’s eligible capital base. Further, the aggregate credit exposure of all banks to the borrowing REIT and its underlying SPVs/holding companies taken together must not exceed 49% of the value of the REIT’s assets as on March 31 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.

• • Lending to REITs constituted overseas may be undertaken by foreign branches only where the relevant jurisdiction has an effective statutory or regulatory insolvency/bankruptcy framework in place.

2. Inclusion of REITs as eligible borrowers:

• • Banks are permitted to lend only to listed REITs and InvITs which are registered with and regulated by the Securities and Exchange Board of India (SEBI).

• • The REIT/InvIT must have a minimum of three years of operations and must have generated positive net distributable cash flows in the preceding two financial years.

• • The REIT/InvIT should also not have been subject to any adverse regulatory action during the previous three years.

• • The underlying SPVs/holding companies of the REITs/InvITs must not be facing any ‘financial difficulty’ as defined under the Reserve Bank of India (Commercial Banks-Resolution of Stressed Assets) Directions, 2025.

3. Security and repayment requirements: 

• • All loans extended to REITs must be fully secured by mortgages of identified assets. The Draft Amendment Directions prohibit bullet repayment or balloon repayment structures, ensuring that repayments are structured on a regular amortisation basis to mitigate repayment risk.

• • Financing against a specified property may be structured either at the REIT/InvIT level or at the SPV/holding company level. Where the lending is undertaken at the REIT/InvIT level against identified properties, any existing borrowings at the SPV or holding company level secured on those properties must first be fully repaid and extinguished.

• • In addition, the bank is required to create charges over receivables from the underlying properties or put in place an escrow arrangement to ring‑fence and monitor cash flows, thereby enhancing certainty of debt servicing.

• • This multi‑layered security structure is intended to ensure that lenders have enforceable rights and a clearly defined priority over trust assets in distressed scenarios. 

4. End-use monitoring:

• • Banks are required to confirm borrowing authorization in the trust deed and diligently monitor end-use of funds allocated to REITs to ensure that this mechanism is not exploited for financing activities (such as land acquisition) that are not permissible under applicable regulations.

• • Where banks provide financing for the purpose of refinancing existing term loans of SPVs, such refinancing may be carried out only in respect of projects that have obtained a Completion Certificate, Occupancy Certificate or an equivalent approval.

• • Banks are required to adopt a board‑approved policy on lending to REITs setting out, at a minimum, the appraisal framework, sanction and underwriting criteria (including the debt service coverage ratio (DSCR) benchmarks), internal exposure limits (single and portfolio‑wide), and monitoring arrangements with appropriate financial covenants.

5. Harmonization of prudential norms for lending to InvITs: 

• • The existing guidelines in respect of lending to InvITs applicable to commercial banks, small finance banks and All India Financial Institutions are proposed to be harmonized with the prudential safeguards proposed for lending to REITs, recognizing the similarity in their organizational structure and risk profiles.

• • Similar to REITs, the aggregate exposure of a bank to an InvIT (including its underlying SPVs and holding companies) must not exceed 10% of the bank’s eligible capital base. The aggregate credit exposure of all banks to the borrowing InvIT and its underlying SPVs/holding companies taken together must not exceed 49% of the value of the InvIT’s assets as on March 31 of the previous financial year.

• • The harmonization extends the same eligibility criteria applicable to REITs to InvITs, including requirements relating to listing status, minimum operational track record, positive distributable cash flows, absence of adverse regulatory action, full security for loans, prohibition on bullet/balloon repayments, and mandatory end-use monitoring.

The Draft Amendment Directions are open for public consultation until March 6, 2026 and are proposed to take effect from July 1, 2026, or such earlier date as may be notified upon adoption of the final directions and, once banks are ready to adopt them.

Conclusion

The Draft Amendment Directions represent a strategic regulatory development aimed at enhancing credit access for REITs and InvITs while maintaining prudent risk management standards. The proposed framework balances the objectives of expanding financing avenues for investment trusts with the imperative of safeguarding financial stability through appropriate prudential safeguards, concentration risk limits, and enhanced disclosure norms.