RBI tightens REIT, InvIT bank lending rules; rejects push for broader refinancing and land finance

Mumbai: The Reserve Bank of India has tightened rules governing banks’ exposure to real estate investment trusts (Reits) and infrastructure investment trusts (InvITs), rejecting industry requests to permit land financing, allow refinancing of under-construction projects and align exposure limits with those set by the Securities and Exchange Board of India (Sebi).

In the final rules issued on Wednesday, the central bank drew a firm line on indirect lending to infrastructure vehicles, saying banks may finance only cash-generating, completed assets.

“As a principle, activities that cannot be undertaken directly shall also not be undertaken indirectly,” the central bank said, adding that, “In all cases, not less than 80% of the value of the InvIT’s assets must be invested in completed and revenue-generating infrastructure projects.”

The rules will take effect from 1 April 2027.

The decision caps months of consultation in which banks and market participants sought greater flexibility on funding of such tokenized assets. In draft amendments issued in February 2026, the RBI had proposed tighter monitoring of end-use of funds to ensure Reit and InvIT structures were not used to channel credit into otherwise restricted activities.

Stakeholders had pushed for permission to finance land costs and carve out exceptions for under-construction infrastructure projects, but the central bank declined. Banks had also flagged operational constraints, including difficulties in tracking end-use and creating charges over receivables, the RBI said.

Lending rules

In line with industry suggestions, the RBI removed the requirement that an investible Reit have at least three years of operational history, a change aimed at ensuring newly formed Reits and InvITs are not excluded from bank financing even when their underlying assets have long operating track records and stable cash flows.

The eligibility criterion will now be tied to the cash-flow history of underlying assets, with at least 80% required to have been cash-flow positive for at least a year. Banks will also need to ensure that lending to a Reit or InvIT is not used to support its special purpose vehicles (SPVs) that already carry debt and are under financial stress.

The RBI extended to Reits the acquisition finance facility earlier available only to InvITs, but barred small finance banks from extending such financing to either asset class.

It also rejected banks’ demand to permit refinancing of construction-stage facilities, limiting such refinancing to operational or completed projects.

“Refinancing of under-construction projects is permitted only under a Syndication arrangement in terms of the extant Directions on Project Finance. Therefore, the request for lending to Reits for refinancing of under-construction projects cannot be accepted,” the rules said, adding this is also applicable to lending to InvITs.

Without bullet or ballooning

Banks may extend loans to Reits only without bullet or ballooning principal repayments, the RBI said, while clarifying that repayment structures may still be aligned with underlying cash flows, including step-up schedules.

“A disproportionate portion of repayments should not be concentrated in the terminal phase of the loan tenure,” it said, adding that this restriction will not be applicable to banks’ exposure to a Reit/InvIT through its investment portfolio in the form of bonds, debentures, and commercial paper.

The central bank also capped aggregate bank credit exposure to a Reit and its underlying SPVs and holding companies at 49% of the Reit’s asset value, based on the previous financial year-end or latest half-yearly valuation, whichever is later. Banks had sought alignment with Sebi rules, which permit leverage of up to 70% for Reits and InvITs.

“The leverage norms prescribed by Sebi and the exposure limits proposed in the RBI directions serve different purposes. The proposed requirement aims to contain the banking system’s exposure to a Reit/InvIT,” the RBI said.

All bank lending to Reits must be fully secured through mortgages over identified assets, assignment of rental cash flows and receivables, pledges over equity in SPVs and other enforceable security interests. A charge over underlying immovable property will be mandatory where financing is extended for acquisition, development, or refinancing of related debt, regardless of structure.

Risk weights have been set at 100% for commercial bank exposures to Reits, rising to 125% if classified as capital market exposure. Overseas bank branches funding Reits constituted overseas will attract a 150% risk weight.

Lending by overseas branches of Indian banks under syndication arrangements will be exempt from most domestic lending directions, provided Indian participation does not exceed 20% of total transaction funding, the RBI said.