Mumbai: The Reserve Bank of India's decision to allow banks to lend directly to real estate investment trusts (REITs) is expected to lower funding costs and improve balance-sheet flexibility for listed trusts, according to experts.
This is also expected to nudge bank exposure in real estate, away from development risk and towards stabilised, income-generating assets, they said.
Until now, REITs had limited access to bank credit and depended largely on bond markets and non-bank lenders for debt funding.
The regulatory change marks a structural easing in real estate finance by formally recognising REITs as eligible bank borrowers, subject to prudential safeguards, the experts said.
"Indian REITs, with around $27 billion of assets under management across office and retail segments, have historically relied on capital market issuances and sponsor-backed financing," said Shishir Baijal, international partner & CMD, Knight Frank India. "Access to bank credit will serve as an additional funding avenue that diversifies the liability stack and enhances refinancing flexibility."
According to him, the move reinforces regulatory confidence in listed real estate vehicles and should strengthen liquidity and depth in India's real estate investment market.
"It further validates the thesis that REITs are long-term capital structures of the highest credit quality, deserving of robust financing that banks can provide. This policy will help expand access to longer-term, competitive bank finance, which will support healthier balance sheets and stable growth by reducing the need for frequent refinancing," said Amit Shetty, CEO of Embassy REIT.
According to him, by having an array of bank lending options and the capital markets to fund their businesses and strategic objectives, REITs are poised to deliver greater growth and, ultimately, better returns to unitholders.
The move could help REITs smoothen maturity profiles, reduce interest costs and free up capital for incremental acquisitions at a time when sponsors are looking to scale portfolios through asset injections.
Vijay Agrawal, MD and sector lead Infrastructure at Equirus Capital, said, "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... Development financing is unlikely to be permitted at the REIT level, consistent with the emphasis on prudential safeguards."
Industry experts believe that immediate deal activity may be limited, but the policy change is a clear positive for the sector, reinforcing REITs as a central pillar of India's commercial real estate financing ecosystem.
India's REIT market currently has five listed entities, dominated by office assets, has expanded steadily over the past few years as institutional investors seek stable yield and developers look to monetise completed assets.
RBI's move is expected to support this trend by diversifying funding sources and strengthening investor confidence in the asset class.
This is also expected to nudge bank exposure in real estate, away from development risk and towards stabilised, income-generating assets, they said.
Until now, REITs had limited access to bank credit and depended largely on bond markets and non-bank lenders for debt funding.
The regulatory change marks a structural easing in real estate finance by formally recognising REITs as eligible bank borrowers, subject to prudential safeguards, the experts said.
"Indian REITs, with around $27 billion of assets under management across office and retail segments, have historically relied on capital market issuances and sponsor-backed financing," said Shishir Baijal, international partner & CMD, Knight Frank India. "Access to bank credit will serve as an additional funding avenue that diversifies the liability stack and enhances refinancing flexibility."
According to him, the move reinforces regulatory confidence in listed real estate vehicles and should strengthen liquidity and depth in India's real estate investment market.
"It further validates the thesis that REITs are long-term capital structures of the highest credit quality, deserving of robust financing that banks can provide. This policy will help expand access to longer-term, competitive bank finance, which will support healthier balance sheets and stable growth by reducing the need for frequent refinancing," said Amit Shetty, CEO of Embassy REIT.
According to him, by having an array of bank lending options and the capital markets to fund their businesses and strategic objectives, REITs are poised to deliver greater growth and, ultimately, better returns to unitholders.
The move could help REITs smoothen maturity profiles, reduce interest costs and free up capital for incremental acquisitions at a time when sponsors are looking to scale portfolios through asset injections.
Vijay Agrawal, MD and sector lead Infrastructure at Equirus Capital, said, "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... Development financing is unlikely to be permitted at the REIT level, consistent with the emphasis on prudential safeguards."
Industry experts believe that immediate deal activity may be limited, but the policy change is a clear positive for the sector, reinforcing REITs as a central pillar of India's commercial real estate financing ecosystem.
India's REIT market currently has five listed entities, dominated by office assets, has expanded steadily over the past few years as institutional investors seek stable yield and developers look to monetise completed assets.
RBI's move is expected to support this trend by diversifying funding sources and strengthening investor confidence in the asset class.
