Banks to finance REITs following RBI guidelines; industry says move supports long-term growth

The Reserve Bank of India (RBI) on Friday announced plans to let banks provide financing directly to Real Estate Investment Trusts (REITs). The measure, designed with prudential safeguards, aims to strengthen the funding ecosystem for India’s real estate sector.Embassy REIT CEO Amit Shetty welcomed the proposal, saying, “This policy step will enhance access to long-term, stable financing for REITs, complementing traditional capital market funding and broadening the financing ecosystem for income-producing real estate.” He added, “By having an array of bank lending options and the capital markets to fund their businesses and strategic objectives, REITs are poised to deliver greater growth and, ultimately, better returns to unitholders," as quoted by PTI.REITs are investment structures that generate income from commercial or residential properties, allowing investors to participate in rental earnings without directly buying real estate. Regulations require that at least 90 per cent of their rental income be distributed to investors.Currently, five REITs are publicly listed in India: Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and Knowledge Realty Trust.

Nexus Select Trust primarily invests in retail properties, while the other four focus on office spaces.The Indian REITs Association (IRA) said the move is a “landmark” step that strengthens the sector’s financial framework. “Direct access to bank lending provides REITs with a stable, long-term source of funding, expanding the avenues of fundraising for these instruments. This is particularly important for an asset class built on long-duration, income-generating real estate,” the association noted.The IRA added that borrowing at the REIT level could reduce financing costs. Currently, REITs typically raise debt by issuing securities that are purchased by mutual funds and NBFCs, which usually prefer short-term instruments of 3-5 years, creating a challenge for securing long-term funds.Neeraj Toshniwal, CFO of Knowledge Realty Trust, said, as quoted by PTI, “Aligning REIT norms with InvITs (Infrastructure Investment Trusts) brings greater clarity and reinforces the focus on strong governance. This approach supports growth while ensuring financial stability and long-term investor confidence.”The RBI’s policy statement highlighted that banks would be allowed to lend to REITs after due diligence, provided a strong regulatory and governance framework is in place for the listed trusts.