The Reserve Bank of India (RBI), in its last monetary policy committee (MPC) meeting for the fiscal today, proposed allowing commercial banks to extend loans directly to real estate investment trusts (REITs), a move seen as positive for improving funding access for the real estate sector and broadening institutional credit availability.

“Considering the presence of a strong regulatory and governance framework for listed REITs, it is proposed to permit commercial banks to extend finance to REITs, subject to appropriate prudential safeguards,” the RBI said in its policy statement.

India currently has five listed REITs - Brookfield India Real Estate Trust, Embassy Office Parks REIT, Knowledge Realty Trust, Mindspace Business Parks REIT, and Nexus Select Trust.

At present, banks are allowed to lend only to special purpose vehicles (SPVs) controlled by REITs, which has compelled trusts to depend heavily on capital market instruments to raise funds.

If implemented, the proposed framework would allow REITs to secure bank financing directly, potentially lowering borrowing costs and supporting faster portfolio expansion, especially in segments such as office spaces and retail properties.

The central bank said the proposal follows a review of the regulatory and governance structure applicable to listed REITs, noting that the robust oversight and compliance mechanisms governing them provide sufficient comfort to permit bank lending, subject to necessary prudential norms.

The proposal forms part of a wider set of measures unveiled by RBI Governor Sanjay Malhotra to strengthen credit access for both small businesses and the property sector. As part of these initiatives, the RBI has also proposed increasing the limit for collateral-free loans to micro and small enterprises to ₹20 lakh from ₹10 lakh. The revised limit will apply to loans sanctioned or renewed from April 1, 2026.

Industry lauds RBI move

The Indian REITs Association (IRA) has welcomed the Reserve Bank of India’s decision to allow commercial banks to lend directly to Real Estate Investment Trusts (REITs), calling it a significant step towards strengthening the funding ecosystem for the sector and supporting its long-term growth.

The industry body said direct access to bank financing will provide REITs with a stable and long-tenure funding source, expanding financing options for an asset class that is built on long-duration, income-generating real estate portfolios.

Currently, REITs primarily raise debt through capital market instruments subscribed by mutual funds, non-banking financial companies (NBFCs), and other institutional investors, which typically prefer shorter tenures of three to five years. The ability to access bank credit is expected to help REITs secure longer-term funding and reduce refinancing pressures.

The association said the flexibility to borrow at the REIT level is also likely to improve financing efficiency, lower borrowing costs, and support portfolio expansion. It added that improved access to capital will help accelerate the formalisation and institutionalisation of India’s commercial real estate sector.

Echoing similar views, Shishir Baijal, International Partner, Chairman and Managing Director at Knight Frank India, said the RBI’s decision marks an important step in strengthening the funding ecosystem for listed real estate investment vehicles.

He noted that Indian REITs, with assets under management of around $27 billion across office and retail segments, have historically relied on capital market borrowings and sponsor-backed financing. Access to bank credit, he said, will diversify funding sources, enhance refinancing flexibility, and improve liquidity in the real estate investment market. The move also signals regulatory confidence in listed real estate platforms, he added.

Budget proposed dedicated REITs for CPSE assets

The RBI’s proposal comes amid a broader policy push to deepen India’s yield investment market and accelerate asset monetisation. In the Union Budget 2026-27, Finance Minister Nirmala Sitharaman announced plans to create dedicated REITs for central public sector enterprises (CPSEs) to unlock value from underutilised government real estate assets and recycle capital into infrastructure development.

The government has also introduced regulatory measures to improve liquidity and investor participation in yield instruments. From January 1, 2026, investments in REITs have been reclassified as equity-related instruments for mutual funds and specialised investment funds, a move expected to improve fund flows and enhance index inclusion.

Additionally, the minimum investment threshold for privately placed Infrastructure Investment Trusts (InvITs) has been reduced to ₹25 lakh from ₹50 lakh, broadening participation from high-net-worth investors and improving depth in the private InvIT market.