Banks Seek RBI Relief on 3-Year Rule for InvIT Loans
Why in the news
Commercial banks lobbied the RBI to soften a lending condition that would bar them from financing InvITs younger than three years, even if the trust holds mature, income-generating assets.
Key facts
- Rule: RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised), issued March 2026, effective 1 July 2026.
- Conditions to lend: the REIT or InvIT must be listed, have three years of operations, and have faced no adverse regulatory action in the past three years.
- Bank objections: entry barrier for new InvITs, delays in moving projects into InvITs, fewer fresh loan sanctions, and unsuitability of treating REITs and InvITs alike.
InvIT versus REIT
| Aspect | InvIT | REIT |
|---|---|---|
| Assets | Roads, power, telecom and other infrastructure | Commercial real estate such as offices and retail |
| Income | Toll, tariff, lease and contracted revenue | Rent from properties |
| Life cycle | Often concession-based with finite tenure | Generally long-life property |
| Main risks | Concession, traffic and regulatory | Tenant, vacancy and property cycle |
| Investors | Largely institutional at first | Institutional and retail (after 2019 reform) |
Background
- InvITs are SEBI-regulated listed trusts that own revenue-earning infrastructure and pass on at least 90% of net distributable cash flow to unitholders.
- National Monetisation Pipeline: announced in August 2021, a ₹6 lakh crore (FY22-FY25) plan to lease brownfield government assets; InvITs are a key vehicle.
- Hybrid Annuity Model (HAM): government funds 40% of cost during construction, developer arranges 60%, and fixed annuities follow over 15 years.
- Toll-Operate-Transfer (TOT): NHAI bundles operational toll roads; bidders pay an upfront fee and collect tolls for 20-30 years before the road reverts.
- SEBI regulates InvITs and REITs under separate 2014 regulations; the RBI governs bank lending, including eligibility, exposure limits, risk weights and provisioning.
Why monetisation and bank credit matter
- Asset monetisation lets operating assets be leased out so the freed capital can fund new projects; it also draws private money, eases government debt and brings professional management.
- The asset-light model: developers build, then hand the assets to InvITs that hold and run them with institutional money.
- Banks offer cheaper debt than NBFCs or capital markets, faster sanctions and flexible tenors, which matters most for smaller InvITs.
- Long-horizon savings pools that could invest include pension funds, insurers, provident funds, sovereign wealth funds, mutual funds and NIIF.
Examples named
- Listed InvITs: IRB InvIT Fund, India Grid Trust, IndInfravit Trust, Powergrid InvIT, Bharat Highways InvIT, National Highways Infra Trust and Highways Infrastructure Trust.
- Listed REITs: Embassy Office Parks (the first, 2019), Mindspace Business Parks, Brookfield India and Nexus Select Trust.
Concerns
- The SEBI relaxation on borrowing and the RBI restriction on bank credit pull in opposite directions, creating uncertainty for sponsors and investors.
- Capital recycling that the monetisation drive relies on could slow if new InvITs cannot get affordable bank debt.
Exam angle
- Regulators: SEBI for InvITs and REITs; RBI for bank lending to them.
- Key date: 1 July 2026.
- Terms: HAM, TOT, NMP, asset monetisation.