RBI Proposes Strategic Shift in Credit Framework: Comprehensive Analysis of Draft 2026 Directions for REIT and InvIT Lending

The Reserve Bank of India (RBI) has unveiled a significant regulatory proposal that aims to reshape the landscape of infrastructure and real estate financing in India. Through the release of the Reserve Bank of India (Commercial Banks – Credit Facilities) Second Amendment Directions, 2026 – Draft for Comments, the central bank has outlined a structured mechanism permitting commercial banks to extend credit facilities to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

This proposed framework, issued under the authority vested by Section 21 and Section 35A of the Banking Regulation Act, 1949, introduces rigorous prudential safeguards to manage risks associated with such exposures. The draft directions are slated to become effective from July 1, 2026, or an earlier date if a bank chooses to adopt the framework in its entirety before the deadline.

Below is a detailed breakdown of the proposed amendments, categorizing the new mandates for REITs and the revised norms for InvITs.

I. New Framework for Lending to Real Estate Investment Trusts (REITs)

The draft directions propose the insertion of a new section, specifically Section F, within Chapter VIII of the existing master directions. This section introduces Paragraph 133A through Paragraph 133L, establishing the ground rules for bank financing to SEBI-registered REITs.

1. Authorization and Governance

Under the proposed Paragraph 133A, commercial banks are explicitly permitted to lend to REITs, provided these entities are registered with and regulated by the Securities and Exchange Board of India (SEBI).

Recognizing the specific legal structure of these entities, Paragraph 133C mandates that banks must exercise due diligence regarding the trust nature of REITs. Banks are required to verify that the trustee borrowing the funds is acting strictly within the powers delineated in the respective trust deed. This is a critical compliance step to ensure the enforceability of security interests in the event of default.

Furthermore, Paragraph 133B extends this permission to overseas branches of Indian banks, allowing them to lend to REITs constituted in foreign jurisdictions. However, this is conditional upon the existence of an effective statutory or regulatory insolvency/bankruptcy mechanism in that specific overseas jurisdiction.