RBI allows banks' lending to REITs
Draft directions will be issued shortly for public consultation, says Guv Sanjay Malhotra
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Mumbai: The Reserve Bank of India on Friday proposed to allow banks to lend to Real Estate Investment Trusts (REITs) with certain prudential safeguards to deepen the financing pool for the real estate sector.
REITs are investment vehicles that own or operate income-generating real estate, enabling investors to earn a share of the income produced without directly purchasing properties.
REITs and Infrastructure Investment Trusts (InvITs) were conceptualised in India to free up banks’ funds in completed and operational real estate and infrastructure projects by refinancing such exposures with pooled funds of institutions and retail investors. Consistent with these objectives, commercial banks were not permitted, ab initio, to lend to these entities, the Reserve Bank said. While bank lending to InvITs was allowed subsequently, lending to REITs was not permitted.
"To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards," RBI Governor Sanjay Malhotra said while unveiling the bi-monthly monetary policy. RBI's 'Statement on Developmental and Regulatory Policies' said it is proposed to permit commercial banks to extend finance to REITs after review and considering the presence of a strong regulatory and governance framework for listed REITs.
The existing guidelines in respect of lending to InvITs are also being harmonised for parity with prudential safeguards proposed for lending to REITs, it added.
At present, there are five listed REITs in India - Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and Knowledge Realty Trust. Draft directions will be issued shortly for public consultation, the central bank said.
In the Union Budget, Finance Minister Nirmala Sitharaman had proposed to accelerate "recycling" of real estate assets owned by Central Public Sector Enterprises (CPSEs) through the setting up of dedicated REITs.
The RBI also announced measures for development of corporate bond market.
