RBI to Permit Bank Loans to REITs Starting July 1, 2026

The Reserve Bank of India (RBI) has taken a significant step forward in the real estate sector by proposing to allow banks to extend loans to listed Real Estate Investment Trusts (REITs). This move is expected to bring more liquidity into the real estate market and help REITs manage their financial obligations more effectively.

Currently, 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. These trusts have been instrumental in providing investors with a way to earn returns from income-generating real estate without directly purchasing properties.

The RBI's proposal, detailed in a draft circular issued on February 13, 2026, outlines several conditions and guidelines for bank lending to REITs. Banks will be permitted to lend to REITs that are registered with and regulated by the Securities and Exchange Board of India (SEBI). The total exposure of all banks to a REIT and its underlying Special Purpose Vehicles (SPVs) or holding companies (holdcos) will be capped at 49 percent of the REIT's asset value as of March 31st of the previous financial year. Banks can set a lower limit based on the credit rating of the REIT or other criteria determined by their Board.

Additionally, banks will be required to monitor the end use of funds lent to REITs strictly. This ensures that the funds are not used for activities that are not permitted, such as land acquisition, even if such acquisition is part of a larger project. The loans provided by banks to REITs must not involve bullet or ballooning principal repayments, promoting a more sustainable and manageable repayment structure.

The RBI's decision to allow bank lending to REITs is a significant development, especially considering that banks have been allowed to lend to Infrastructure Investment Trusts (InvITs) for some time. REITs and InvITs were conceptualized to free up banks' funds in completed and operational real estate and infrastructure projects by refinancing such exposures with pooled funds from institutional and retail investors. Initially, commercial banks were not permitted to lend to these entities, but the rules were relaxed for InvITs in the past.

The draft circular also proposes to harmonize existing guidelines for lending to InvITs to ensure parity with the prudential safeguards proposed for lending to REITs. This harmonization is crucial given the similarity in the organizational structure and risks associated with REITs and InvITs.

The RBI has sought comments on the draft circular until March 6, 2026, and plans to implement the new lending rules from July 1, 2026, or an earlier date if feasible. This move is expected to provide a much-needed boost to the real estate sector, making it easier for REITs to access capital and expand their operations.

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. By allowing banks to lend to REITs, the RBI is taking a significant step towards enhancing liquidity and supporting the growth of the real estate market in India.

The decision to permit bank loans to REITs is a positive development for the real estate sector, as it will help REITs manage their financial obligations more effectively and provide investors with more opportunities to participate in the real estate market. The RBI's careful approach, with strict guidelines and monitoring, ensures that the benefits of this move are realized without compromising financial stability.