What changed
RBI amended the Credit Facilities Directions to explicitly include REITs and InvITs under permissible lending categories. New Section F (paragraphs 133A-133O) lays down detailed conditions for lending to REITs, including listing requirements, cash flow criteria, and repayment structure norms.
What it means for you
Banks now have a clear regulatory framework to lend to REITs, opening a new asset class for credit deployment. However, strict conditions like board-approved policies, end-use monitoring, and prohibitions on bullet repayments will require operational adjustments. Lending to REITs with stressed SPVs or incomplete projects is restricted, ensuring credit discipline.
What you must do
- Formulate a board-approved policy for lending to REITs covering appraisal, underwriting, exposure limits, and monitoring.
- Verify that the REIT is SEBI-registered, listed, and has ≥80% assets generating positive cash flows for at least one year.
- Ensure loan agreements prohibit bullet/balloon repayments and align repayment schedules with projected cash flows.
- Monitor end-use strictly to prevent financing of activities not directly permitted under extant regulations.
- For overseas branch syndication, ensure your bank's funding share does not exceed 20% of the total deal.
Who it affects
All commercial banks in India, Overseas branches of Indian banks, REITs and InvITs seeking bank financing, Bank credit and risk management teams
Can banks lend to unlisted REITs?
No. The directions require that the REIT must be listed and registered with SEBI (or a comparable financial sector regulator for overseas branches).
What are the restrictions on refinancing SPVs through REIT lending?
Refinancing is allowed only for completed projects that have received Completion Certificate or Occupancy Certificate. Lending cannot be used to fund SPVs with existing loans facing financial difficulty as per RBI's stressed assets directions.
Are bullet repayment structures allowed for REIT loans?
No. The directions prohibit bullet or ballooning repayment structures to avoid disproportionate principal repayment at the end of the loan tenure. However, repayment schedules can be structured in line with projected cash flows.