On February 6, 2026, RBI Governor Sanjay Malhotra announced a significant policy shift by proposing to allow commercial banks to lend directly to Real Estate Investment Trusts (REITs).
This move effectively ends a long-standing restriction where banks were previously only permitted to lend to the underlying Special Purpose Vehicles (SPVs) rather than the parent Trust structure itself.
1. Why the Policy Shift?
The RBI cited the “strong regulatory and governance framework” now governing listed REITs as the primary reason for this liberalization.
- Objective: To diversify funding sources for the real estate sector and reduce the reliance of REITs on more volatile capital markets and expensive private debt.
- Harmonization: The move aligns the treatment of REITs with Infrastructure Investment Trusts (InvITs), which were already permitted to receive direct bank financing.
- Institutional Maturation: As REITs have proven to be stable vehicles for monetizing income-generating assets (offices, malls, and warehouses), the RBI now views them as lower-risk borrowers compared to traditional, under-construction real estate projects.
2. Key Benefits for the Real Estate Sector
Industry experts from CBRE, Knight Frank, and JLL have lauded the move as a “major boost” for the following reasons:
- Lower Borrowing Costs: Banks are expected to offer interest rates in the range of 7% to 8%, significantly lower than the 10% to 12% typically seen in private debt or non-convertible debentures (NCDs).
- Cheaper Refinancing: REITs can now use stable bank loans to refinance existing high-cost debt, directly improving their distributable cash flows for investors.
- Faster Expansion: Direct access to bank credit allows REITs to be more agile in acquiring new completed assets or expanding their current portfolios.
3. Safeguards and Regulatory “Riders”
While the doors are opening, the RBI will not allow “blind lending.” The central bank is currently drafting specific prudential safeguards, which are expected to include:
- Exposure Limits: Caps on how much a single bank can lend to a specific REIT or the sector as a whole.
- Listed Only: Direct lending will likely be restricted to listed REITs that adhere to SEBI’s transparency and distribution norms.
- Purpose Restriction: Loans will primarily be targeted toward income-generating assets rather than speculative land bank acquisitions.
4. Broader Context: A “Real Estate Friendly” MPC
The REIT announcement was one of several measures in the February 2026 policy aimed at stabilizing the sector:
- Repo Rate Stability: The benchmark rate was held at 5.25%, providing predictability for home loan EMIs and developer funding.
- Budget Alignment: The move complements the Union Budget 2026 proposal to use REITs to monetize real estate assets of Central Public Sector Enterprises (CPSEs).
Conclusion: A Shift to Stable Infrastructure
By allowing banks to fund REITs directly, the RBI is effectively treating commercial real estate trusts more like “infrastructure” than “speculative construction.” This shift is expected to attract deeper pools of domestic capital and lower the cost of doing business for India’s largest commercial landlords.
