Mumbai

The Reserve Bank of India (RBI) on Friday proposed to permit banks to extend loans to Real Estate Investment Trusts (REITs), subject to prudential safeguards, in a move aimed at broadening financing avenues for the real estate sector.

REITs are investment platforms that own or operate income-yielding real estate assets, allowing investors to earn returns from property-linked income without direct ownership.

In India, REITs and Infrastructure Investment Trusts (InvITs) were introduced to unlock bank capital tied up in completed and operational real estate and infrastructure projects by refinancing them through pooled investments from institutional and retail investors.

In line with this objective, banks were originally barred from lending to both REITs and InvITs. While lending to InvITs was subsequently allowed, commercial banks were not permitted to lend to REITs, the central bank noted.

“To further promote financing to the real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards,” RBI Governor Sanjay Malhotra said while announcing the bi-monthly monetary policy.

In its Statement on Developmental and Regulatory Policies, the RBI said it plans to permit bank financing to REITs after reviewing the framework and taking into account the robust regulatory and governance structure applicable to listed REITs.

The central bank also said that the existing norms for lending to InvITs will be harmonised with the safeguards proposed for REITs to ensure regulatory parity.

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

The RBI said draft guidelines will be issued shortly for public consultation.

In the Union Budget presented earlier this month, Finance Minister Nirmala Sitharaman had proposed speeding up the “recycling” of real estate assets held by Central Public Sector Enterprises (CPSEs) through the creation of dedicated REITs.

Separately, the RBI announced steps to deepen the corporate bond market, noting that a vibrant derivatives ecosystem can help manage credit risk more efficiently, enhance liquidity and support bond issuance across different credit ratings.

The Union Budget speech delivered on February 1, 2026, had announced the introduction of total return swaps on corporate bonds and derivatives linked to corporate bond indices. In line with this, the RBI said a regulatory framework enabling these instruments will be released soon for public feedback.

The central bank also proposed issuing revised draft guidelines for Authorised Dealer (AD) banks and standalone primary dealers (SPDs), granting them greater operational flexibility in foreign exchange transactions.

Banks and SPDs authorised under the Foreign Exchange Management Act (FEMA), 1999, participate in the forex market for market-making, balance sheet management and risk hedging. The RBI said the regulatory framework governing these activities has been reviewed and streamlined to align with evolving domestic and global market practices.

Under the proposed changes, authorised dealers will receive enhanced flexibility in forex products, risk management tools and trading platforms, with draft directions to be placed in the public domain shortly.

Additionally, the RBI announced that it plans to remove the existing cap of Rs 2.5 lakh crore on investments made under the Voluntary Retention Route (VRR).

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However, investments under VRR will continue to be governed by the sectoral ceilings applicable under the General Route, the RBI added.