Unlocking Bank Capital for India’s Asset Trusts: RBI’s New Regime for REITs and InvITs

Reserve Bank of India (“RBI”) has addressed the regulatory treatment of bank lending to real estate investment trusts (“REITs”) and infrastructure investment trusts (“InvITs”) through the Reserve Bank of India (Commercial Banks – Credit Facilities) Third Amendment Directions, 2026 (the “Amendment Directions”) which come into force on October 1, 2026, or earlier where adopted in entirety by a commercial bank. While the RBI had earlier permitted bank lending to InvITs under a separate 2019 circular, that circular has since been withdrawn, and the Amendment Directions now set out a more detailed framework for commercial banks (“Banks”) to lend to REITs and InvITs that are registered with and regulated by the Securities and Exchange Board of India (“SEBI”).

The Amendment Directions should be viewed as a measured expansion of Bank financing to REITs and InvITs, rather than an open-ended relaxation. The Amendment Directions recognises that REITs and InvITs are asset-backed, trust-based vehicles whose repayment capacity depends largely on underlying cash flows such as rentals, annuities, toll collections, transmission charges or other project receivables. Accordingly, Bank lending is now tied to conditions around listing, asset maturity, end-use, leverage and enforceable security, rather than being treated as ordinary corporate lending.

Eligibility and Credit Assessment

The Amendment Directions permit Banks to lend only to REITs and InvITs which are registered with and regulated by SEBI, subject to the Bank having in place a Board-approved policy covering appraisal, sanctioning, underwriting, debt service coverage ratio benchmarks, exposure limits, monitoring and covenants. For InvITs, Banks must also satisfy themselves on the valuation methodology and assumptions, given that InvIT valuations are largely based on projected cash flows. The borrower and the underlying asset pool must also satisfy the following conditions:

Listing status: The borrowing REIT or InvIT must be listed in accordance with the applicable SEBI regulations.

Seasoned cash-flow assets: For REITs, at least 80% of the underlying assets must have generated positive cash flows from operations for at least one year. For InvITs, at least 80% of the value of the InvIT assets must be invested in completed and revenue-generating infrastructure projects, and such assets must have generated positive cash flows from operations for at least one year.

No funding of stressed SPVs: Bank finance must not be used to fund special purpose vehicles (“SPVs”) with existing loans from regulated entities (“REs”) which are facing “financial difficulty” under the applicable RBI stressed assets framework.

End-use and refinancing: Bank finance must be used only for permitted purposes, and Banks are required to monitor end use. Where the financing is used to refinance debt availed by an underlying SPV, the relevant asset must have reached the prescribed operational stage. For REITs, this means completed projects with a completion certificate, occupancy certificate or equivalent approval. For InvITs, this means completed projects which have achieved commercial operations.

Capacity and enforceability: Banks must be satisfied that the REIT or InvIT is legally authorised to incur the proposed borrowing and create security in favour of lenders. This requires a review of the applicable regulations and constitutive documents to ensure that the borrowing, security creation and enforcement of lender rights are not restricted.

Repayment structure: Credit facilities to REITs and InvITs cannot be structured with bullet or ballooning repayments. While repayment schedules may be aligned with projected cash flows, the debt must amortise in a manner consistent with the cash-flow profile of the underlying assets. This restriction does not apply to investment exposures by Banks through bonds, debentures or commercial paper.

Leverage and exposure limits: The overall leverage of the REIT or InvIT must remain within the applicable SEBI limit or any lower limit specified in the Bank’s Board-approved policy. Further, the aggregate exposure of all Banks to the borrowing REIT or InvIT, together with its underlying SPVs and holding companies, must not exceed 49% of the value of the REIT or InvIT assets, or any lower limit specified under the relevant Bank’s Board-approved policy. This exposure includes fund-based facilities, investments in bonds, debentures and commercial paper, and the credit equivalent of non-fund-based facilities.

REIT-specific prudential treatment: REIT exposures are also subject to separate concentration and capital requirements. Banks are required to maintain internal limits for real estate exposure, with aggregate exposure to REITs capped at 10% of the Bank’s eligible capital base. REIT exposures are treated as commercial real estate exposures and attract a 100% risk weight, or 125% where treated as capital market exposure.

Security and cash-flow control

The Amendment Directions require Bank finance to REITs and InvITs to be fully secured. The security package may include a charge over the relevant immovable property or project assets, assignment of rentals, receivables or project cash flows, pledge of equity interests in the relevant SPVs or holding companies, and other enforceable security. For REITs, where the financing is linked to acquisition, development or refinancing of an underlying property, a charge over such property is mandatory and must be created on an exclusive first charge or first pari passu charge basis, including where the acquisition is undertaken indirectly through an SPV or holding company.

The financing documents should also provide for effective cash-flow control and lender protections, including escrow arrangements, assignment of receivables, step-in rights or similar protections where relevant, and restrictions on actions by the borrower or underlying SPVs which may prejudice creditor rights. In practice, Banks will need to ensure that the proposed security is not only contractually documented, but also legally enforceable and practically effective across the REIT or InvIT structure.

Acquisition Finance: Chapter XI applies, with modifications

The Amendment Directions also deal with Bank finance to REITs and InvITs for acquiring equity interests in other entities, including underlying SPVs and holding companies. Such financing is subject to Chapter XI of the RBI credit facilities directions relating to acquisition finance, with certain modifications to account for the trust-based structure of REITs and InvITs.

In particular, the requirement that the acquiring entity must be a non-financial company does not apply to REITs and InvITs. However, the core safeguards under the acquisition finance framework (Chapter XI) continue to be relevant, including credit assessment on a consolidated basis, valuation requirements and the cap on Bank financing at 75% of the acquisition value.

Accordingly, the purpose clause and drawdown conditions should clearly identify whether the facility is being used for ordinary financing, refinancing of SPV debt or acquisition finance. Where the transaction is acquisition-linked, the acquisition route, target details, valuation, security package and applicable Chapter XI conditions should be clearly captured in the financing documents.Top of FormBottom of Form

Documentation impact

From a documentation perspective, the Amendment Directions will require closer alignment between the proposed use of funds, the underlying asset pool and the Bank’s credit protections. Facility documents should clearly identify the purpose of the borrowing and should translate the core regulatory conditions into conditions precedent, representations, undertakings and events of default. This will include, at a minimum, SEBI registration, listing status, asset seasoning, permitted end use, absence of stressed SPVs, leverage and exposure limits, borrowing capacity, enforceability of security and cash-flow controls. For acquisition-linked facilities, the acquisition route, target details, valuation requirements and applicable Chapter XI conditions should be specifically documented. Ultimately, the Amendment Directions make Bank financing to REITs and InvITs more viable, but only where the transaction is structured, secured and monitored in line with the regulatory conditions.