Commercial banks can lend directly to eligible Real Estate Investment Trusts from today under a new Reserve Bank of India framework, adding bank loans to the financing options available to listed REITs.
The change, however, does not relax the overall leverage limits applicable to REITs or create unrestricted bank financing for real estate. RBI has tied the new lending route to cash-flow eligibility, security, repayment and exposure conditions, while the borrowing REIT must continue to operate within the leverage framework prescribed by the Securities and Exchange Board of India.
RBI’s Commercial Banks – Credit Facilities Third Amendment Directions, 2026, issued on June 10, permit banks to lend to REITs registered with and regulated by SEBI. The framework becomes effective from October 1, although RBI allowed individual banks to adopt it earlier if they implemented the relevant directions in their entirety.
The lending window is not available to every REIT. The REIT has to be listed, and at least 80% of its underlying assets must have generated positive operating cash flows for at least one year. Banks must also assess whether cash flows available at the REIT level are sufficient to service the proposed debt.
The framework opens direct bank lending to qualifying REITs and specifically sets conditions for important uses such as refinancing debt of underlying special purpose vehicles and financing acquisitions.
The refinancing route is restricted. Where REIT borrowing is used to refinance existing credit facilities of an underlying SPV, the project must be completed and must have received a completion certificate, occupancy certificate or equivalent approval. A REIT loan also cannot be used to fund an underlying SPV that is in financial difficulty under RBI’s stressed-asset framework where the SPV already has loans from regulated entities.
Acquisition finance is a significant part of the framework. RBI permits bank finance for qualifying acquisitions by a REIT, including the acquisition of stakes in SPVs and holding companies, but such lending remains subject to RBI’s broader Acquisition Finance framework, except for specific requirements from which REITs have been exempted. The rules can therefore support acquisitions through property-owning entities, but they do not create an unrestricted bank-financing route for every REIT stake acquisition.
That does not, however, remove existing leverage controls.
Under SEBI’s REIT Regulations, aggregate consolidated borrowings and deferred payments of a REIT, its holding companies and SPVs, net of cash and cash equivalents, cannot exceed 49% of the value of REIT assets. Where this leverage exceeds 25%, any further borrowing requires an issuer credit rating of the REIT and approval of unitholders. The SEBI ceiling continues to apply under the new RBI framework, while a bank’s board may prescribe a lower overall leverage limit for the borrowing REIT. RBI expressly requires REIT leverage to remain within the SEBI ceiling or such lower limit.
RBI has introduced a separate 49% ceiling on bank exposure. The aggregate exposure of all banks to a borrowing REIT, together with its underlying SPVs and holding companies, cannot exceed 49% of the value of the REIT’s assets, or a lower limit prescribed by a bank’s board.
The two 49% limits therefore measure different things and are calculated differently. SEBI’s test measures the REIT group’s consolidated borrowings and deferred payments after netting cash and cash equivalents, with cash and cash equivalents also excluded from REIT asset value for this calculation. RBI’s test measures aggregate bank exposure against REIT asset value on a gross basis, without netting cash and cash equivalents. For the RBI ceiling, exposure includes outstanding fund-based credit facilities, including investments in bonds, debentures and commercial paper, as well as the credit-equivalent amount of non-fund-based facilities.
There is also a lender-level ceiling. Under RBI’s companion Concentration Risk Management Third Amendment Directions, a bank’s total exposure to REITs cannot exceed 10% of its eligible capital base. This is a limit on a bank’s overall REIT portfolio, not a 10% limit on an individual REIT.
Bank lending must also be fully secured. Security can include a charge over underlying property, assignment of rental cash flows and receivables, and a pledge of the REIT’s interest in the relevant SPV. A charge over the underlying property is mandatory where bank finance is used for property acquisition or development, or to refinance debt raised for those purposes. RBI also requires the loan agreement to provide for an escrow account to ring-fence project cash flows.
The repayment structure is similarly controlled. Credit facilities extended by banks to REITs cannot use bullet or balloon structures that concentrate a disproportionate share of principal repayment at the end of the loan tenure, although repayments may be aligned with projected cash flows. The restriction does not apply to a bank’s REIT exposure through bonds, debentures or commercial paper.
RBI has separately prescribed the capital treatment for lenders. REIT exposures will generally be treated as commercial real-estate exposures carrying a 100% risk weight, while exposures classified as capital-market exposures attract a 125% risk weight.
For the real estate sector, the principal change from October 1 is therefore the addition of banks as direct lenders to qualifying REITs, including for certain acquisitions and refinancing transactions. It could broaden the sources from which REITs raise debt and give them another financing route alongside bonds and other market borrowings.
But the framework is not a general easing of bank lending to real estate. It applies to listed, SEBI-regulated REITs meeting the prescribed cash-flow conditions; refinancing of SPV debt is restricted to completed projects; loans must be secured; SEBI’s existing REIT-level leverage ceiling remains in place, while RBI has separately imposed limits on banking-system and individual-bank exposure to REITs.
In effect, RBI has opened a new channel of institutional funding without increasing the amount of leverage that SEBI permits a REIT to carry. What changes from October 1 is the availability of a direct bank-credit channel to eligible REITs, including for qualifying refinancing and acquisition transactions. What does not change is SEBI’s overall leverage ceiling; RBI instead overlays the new lending channel with separate bank-exposure, security, cash-flow and repayment safeguards.
