Blurb:
RBI Governor Sanjay Malhotra announced reforms to boost credit flow to REITs and ease expansion norms for NBFCs.
Mumbai
Reserve Bank Governor Sanjay Malhotra on Friday said the central bank proposes to allow commercial banks to extend finance to Real Estate Investment Trusts (REITs), marking a significant shift in India’s financial and real estate funding landscape. The move, he said, will be subject to appropriate prudential safeguards and reflects the growing maturity of the regulatory framework governing listed REITs.
Malhotra explained that REITs and Infrastructure Investment Trusts (InvITs) were originally conceptualised in India to help free up banks’ capital locked in completed and operational real estate and infrastructure projects. These trusts were designed to refinance such assets using pooled funds from institutional and retail investors, reducing direct exposure of banks. In line with that objective, commercial banks were initially barred from lending to both REITs and InvITs.
While bank lending to InvITs was permitted at a later stage, lending to REITs remained prohibited until now. Upon review, and 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, Malhotra said.
He added that existing guidelines for lending to InvITs will also be harmonised to ensure parity with the prudential safeguards proposed for REITs. Draft directions outlining the revised framework will be issued shortly for public consultation, allowing stakeholders to provide feedback before the rules are finalised. Market participants expect the move to broaden funding options for REITs and deepen India’s listed real estate market.
In a separate announcement, Malhotra said the Reserve Bank of India also proposes to dispense with the requirement of prior approval for opening branches in the case of NBFCs-Investment and Credit Companies (ICCs) engaged in lending against gold collateral. Currently, such NBFCs with more than 1,000 branches are required to seek RBI approval before opening new outlets.
In view of the comprehensive prudential and governance framework applicable to NBFC-ICCs, it is proposed to dispense with the requirement of prior approval for opening branches by such NBFCs, the governor said.
