By Vijay Agrawal, MD & Sector lead Infrastructure at Equirus Capital on RBI MPC announcement today for your perusal.
“The proposal by the Reserve Bank of India to allow banks to lend directly to REITs, subject to prudential safeguards, represents a structural easing in real estate financing. Historically, REITs had limited access to bank credit and relied predominantly on capital market instruments such as bonds or NBFC funding. This announcement indicates regulatory comfort with REITs as stable, cash-flow-backed entities rather than speculative real estate exposures.
The likely impact is threefold. First, it is expected to lower the cost of capital for REITs, as bank funding is typically cheaper and longer-tenor compared to bond or NBFC financing. Second, improved access to bank credit should enhance refinancing flexibility and support incremental acquisitions, thereby aiding portfolio growth and asset recycling. Third, from a systemic perspective, the measure encourages a shift in real estate financing away from development-stage risk towards stabilised, income-generating assets with transparent governance and predictable cash flows.
From a product standpoint, bank lending is expected to focus primarily on term loans and refinancing facilities, particularly for take-out of existing debt, portfolio-level refinancing, and funding of completed, income-generating assets. In addition, acquisition financing for stabilised commercial assets, as well as non-fund-based facilities such as bank guarantees and working capital lines for operational requirements, are likely to gain prominence. Development financing is unlikely to be permitted at the REIT level, consistent with the emphasis on prudential safeguards.
While the reference to “prudential safeguards” suggests conservative exposure limits and underwriting norms, the overall direction is clearly constructive. Overall, the move should lower funding costs for REITs, improve debt maturity profiles, and enhance balance sheet flexibility. More broadly, it encourages a shift in bank exposure from development-stage real estate risk to regulated vehicles backed by predictable rental cash flows, supporting a more resilient and disciplined real estate financing ecosystem.”