Sebi moves to ease post-concession, cash-management rules for InvITs, REITs

India’s market regulator has proposed targeted regulatory changes for real estate and infrastructure investment trusts, seeking to ease cash deployment, borrowing flexibility, and post-concession asset handling while retaining existing investor protection norms.

In a consultation paper issued on Thursday, the Securities and Exchange Board of India (Sebi) has proposed allowing InvITs to continue holding special purpose vehicles (SPVs) beyond the end of a project’s concession period.

Under current rules, an SPV is required to hold at least 90% of its assets in infrastructure projects. Once a concession ends, the asset typically reverts to the government, leaving the SPV without an eligible infrastructure project.

However, InvITs often cannot immediately wind up or exit such SPVs because they continue to face tax assessments, litigation, defect liability obligations and other contractual responsibilities. Sebi has proposed clarifying that InvITs may continue to hold such SPVs even if they temporarily fail to meet the definition of an SPV, addressing a long-standing regulatory ambiguity.

“Allowing InvITs to retain SPVs beyond concession expiry is a practical and forward-looking step. It enables better long-term asset monetization, avoids forced divestments, and enhances income stability for investors," said Sumeet Bhatia, managing director- capital market services at Savills India.

Wider asset universe

The regulator has also proposed expanding the scope of investments that Reits and InvITs can make in liquid mutual fund schemes. Currently, investments are permitted only in a narrow set of liquid instruments.

By widening the eligible universe, the regulator aims to give trusts greater flexibility in parking surplus cash without materially increasing risk, which could help improve treasury management and returns on idle funds.

Another proposal seeks to align the investment conditions for private InvITs with those applicable to publicly listed InvITs when it comes to greenfield projects. At present, private InvITs face tighter restrictions, limiting their ability to invest in projects that are under development.

Sebi has suggested easing these conditions by allowing infrastructure trusts to invest up to 10% of the value of their InvIT assets in pure greenfield projects, in alignment with publicly listed InvITs.

The consultation paper also addresses borrowing constraints for InvITs whose net borrowings exceed 49% of asset value. Existing regulations impose strict limits on how additional borrowings can be used once this threshold is crossed.

“Permitting Reits and InvITs to deploy surplus cash into liquid mutual funds strengthens treasury efficiency, improves return optimization, and supports more consistent distribution payouts without materially increasing risk," said Bhatia.

Sebi has proposed expanding the permitted end-use of fresh borrowings in such cases, allowing InvITs greater flexibility to refinance existing debt, meet operational requirements or manage cash flows more efficiently, subject to appropriate safeguards.

“Sebi's proposed ease of doing business measures for Reits and InvITs come at a very timely moment for India’s real estate and infrastructure capital markets," said Vivek Rathi, national director-research at Knight Frank India.

“After a phase of higher interest rates, tighter liquidity, and global risk aversion, these vehicles need greater operational flexibility to attract long-term domestic and institutional capital. The regulator is rightly shifting from a compliance-heavy framework to a capital efficiency framework,” he added.