IRA backs RBI move allowing banks to finance REITs

The Reserve Bank of India has allowed banks to provide loans directly to Real Estate Investment Trusts (REITs), a step welcomed by the Indian REITs Association (IRA). RBI Governor Sanjay Malhotra announced the change during the recent Monetary Policy Committee meeting, which is expected to give the commercial real estate sector a more reliable source of long-term capital."This landmark move strengthens the financial framework for REITs and supports their long-term growth," the IRA said, as quoted by ANI.REITs, which hold major assets such as shopping malls and office complexes, earn revenue over extended periods and therefore require financing options aligned with these long-term cash flows. The IRA noted that "direct access to bank lending provides REITs with a stable, long-term source of funding." They added that the policy widens "the avenues of fund raising for these instruments," a crucial factor for investments in "long-duration, income-generating real estate."Currently, REITs often secure funds by issuing debt securities to investors like mutual funds or non-banking financial companies. These investors typically prefer shorter commitments of three to five years, limiting the availability of long-term financing. The association observed that "the ability to borrow at the REIT level is also expected to result in more efficient financing costs," pointing out that "long term funding remains a challenge" under the existing system.The IRA and industry analysts see the RBI’s decision as a positive step toward greater professionalism in India’s real estate market. With this "greater financial flexibility," REITs will be "better positioned to support portfolio expansion and contribute to the formalisation" of the country’s commercial property sector.