· Only a REIT whose units are listed is permitted to issue listed debt securities to eligible investors.

· Additionally, REITs are eligible to issue listed commercial papers for a tenor of up to 1 year to eligible domestic and foreign investors.

· Financings from NBFCs.

It is unclear whether REITs can avail external commercial borrowings under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, given that eligible borrowers include only persons resident in India (other than an individual) that are incorporated, established or registered under a Central or State Act, whereas REITs are established as trusts under the SEBI REIT Regulations, which are not in the nature of a Central or State Act (though the SEBI REIT Regulations are themselves issued pursuant to the SEBI Act). In its clarifications issued in connection with requests raised by market participants on the draft regulations for trusts to be clarified as eligible borrowers, RBI stated that the request was not accepted and the principle stated on eligible borrowers being established or registered under the Central or State Act should be followed.

· Banks can finance listed REITs which have at least 80% of their underlying assets generating positive operating cash flows for at least one year, subject to the board policy of the bank.

· While this is a fresh avenue for availing financings by REITs in addition to the historically popular modes of financing such as issuance of NCDs and commercial papers, this route is available to only listed REITs with positive operating cash flows.

Loans (from NBFCs), non-convertible debentures and commercial papers issued to eligible investors, noting that NBFCs which are part of bank group are subject to end use restrictions similar to banks.

Loans, non-convertible debentures and commercial papers from banks

Loans (from NBFCs), non-convertible debentures and commercial papers issued to eligible investors, noting that NBFCs which are part of bank group are subject to end use restrictions similar to banks.

Loans, non-convertible debentures and commercial papers from banks

Under the SEBI REIT regulations, the aggregate consolidated borrowings and deferred payments of the REIT (other than refundable security deposits to tenants), its HoldCos (as defined in the SEBI REIT regulations) and/or its SPVs, net of cash and cash equivalents are required to be less than 49% of the value of the REIT assets. However, for exceeding the borrowing threshold of 25% of the value of the REIT assets, a REIT has to obtained unitholders’ approval and an issuer credit rating of the REIT.

All financings availed by REITs in whatsoever form should be within this ceiling.

Aggregate exposure of all banks to a borrowing REIT, together with its underlying SPVs/ holding companies, should not exceed 49% of the value of assets of the REIT, or such lower limit as may be decided by the bank’s Board. The value of assets of REIT, in this regard, is calculated in line with the SEBI REIT Regulations without netting cash and cash equivalents.

Under the SEBI InvIT regulations, the aggregate consolidated borrowings and deferred payments of the InvIT (other than refundable security deposits to tenants), its holdcos and/or its SPV(s), net of cash and cash equivalents can be up to 70% of the value of the InvIT assets, subject to unit holder approval and compliance with other requirements set out in the SEBI InvIT regulations.

All financings availed by InvITs in whatsoever form should be within this ceiling.

Banks will be required to limit their aggregate exposure to InvITs, together with their underlying SPVs/ holding companies, to up to 49% of the value of the InvIT’s assets, or such lower limit as may be prescribed by the board of the bank. The value of assets of InvIT, in this regard, is calculated in line with the SEBI InvIT Regulations without netting cash and cash equivalents.

· For NCDs: there are no specific restrictions on the end use of the funds availed by REITs.

· For CPs: ordinarily be used to finance current assets and operating expenses. However, if such funds are used for any other purpose, the exact/ specific end-use shall be disclosed in the offer document.

· In addition, NBFCs other than NBFCs which are part of a bank group can lend to REITs for purposes which Indian banks cannot, such as acquisition of land. However, NBFCs will have to comply with exposure norms applicable to them in relation to financing of REITs.

· Banks are required to monitor end use of funds lent to REITs to ensure that this route is not being used to finance activities which are not directly permitted to be financed under the extant regulations.

· Such restricted end use may include acquisition of land as the same is generally not permitted to be financed by commercial banks, which was expressly restricted under the Draft Directions. While the final Credit Facilities Amendment Directions do not explicitly restrict this end use, RBI has indicated (in its response to stakeholder feedback on the Draft Directions) that this restriction will continue to apply to bank financing to REITs.

· Availing bank financing by REIT for refinance of existing borrowings of SPVs is permitted only for refinancing towards completed projects that have received a Completion Certificate (CC), Occupancy Certificate (OC), or their equivalent.

Same as for REITs.

Banks are permitted to provide funding to InvITs to refinance existing borrowings of SPVs of InvITs only to the extent such lending is in relation to refinancing towards completed projects that have achieved commencement of commercial operations.

Existing regulations do not prescribe any restriction on financing REITs facing financial difficulty, and such credit assessments have to be conducted by the relevant investors based on their individual risk appetite.

However, in the event the lender is an RBI regulated entity such as an NBFC, prudential norms relating to classification of assets as standard or non-performing assets are applicable.

In addition to the existing provisioning norms applicable to banks while providing financing to any entity, a bank providing REIT financing is required to ensure that funds lent to a REIT are not used to fund its SPVs having existing loans from RBI regulated entities where such SPVs are facing ‘financial difficulty’, which is determined as per the criteria set out in Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.

· Given that REIT financing often involves financing of SPVs which may not generate cash flows immediately, it is common for financings at REITs to have a ballooning or bullet repayment structure, in order to enable REITs to repay once the SPVs have generated sufficient cash flows.

· In case of existing modes of financing such as NCDs and commercial papers, there are no specific prescriptions on repayment structures to be followed.

· Credit facilities to REITs should not involve bullet or ballooning repayment structures.

· However (a) banks are permitted to structure the repayment schedule in line with projected cash flows; and (b) the above restriction on ballooning repayments does not apply if the investment in REITs is in the form of bonds, debentures, and commercial paper subscribed to by portfolio arms of banks.

Under the existing modes of financing available to REITs, there is no specific restriction in relation to the end use of the financings.

· Indian banks are permitted to provide finance to a REIT to acquire control in a non-financial target company. Such financing may be extended to:

(a) the REIT which intends to acquire the target directly; or

(b) the REIT directly which then on-lends the proceeds to a HoldCo for acquisition of the target.

· Acquisition finance to REITs is not available by way of financing provided to a subsidiary/ SPV/ holding company on the strength of the REIT or through an SPV set up for the purposes of such acquisition.

· Accordingly, structures where a REIT seeks to avail acquisition financing through an SPV / subsidiary will not be available to be financed by banks, and such REITs will be required to: (a) either be the direct borrower and acquire the SPV either by itself or through a HoldCo; or (b) rely on financings from private credit funds and foreign portfolio investors for availing funding through an SPV.

· SPVs may still avail bank financing for acquisition finance as long as it is availing the same independently as the ultimate acquiring company.

· In general, bank financing is not permitted to exceed 75% of the acquisition value, and the acquirer must contribute the remainder of the funds from its own funds or in case of a listed company, also by way of a bridge finance. However, the Credit Facilities Amendment Directions clarify that the condition regarding balance contribution of funds through internal accruals/bridge finance is not applicable to REITs.

· The condition to maintain a debt-to-equity ratio of 3:1 on a consolidated basis for the acquirer availing bank finance under the Acquisition Finance Amendments is not applicable to REITs.

· Further, the requirement that the acquirer and the target should not be related parties and the requirement for maintaining net profit after tax reported in each of the previous three consecutive financial years which are otherwise applicable to borrowings pursuant to the Acquisition Finance Amendments are not applicable in relation to bank acquisition financings to REITs. This will provide greater flexibility as compared to acquisition financing by a corporate, including in situations where the sponsor of the REIT is transferring assets to the REIT.

· Banks financings to REITs are required to be fully secured by, inter alia, a charge over the underlying immovable property, an assignment of rental cash flows and receivables, a pledge of equity interests held by the REIT in the relevant SPV, and / or such other legally enforceable security interest as may be applicable.

· In case the charge is over immovable property, it is required to be in the nature of a first ranking exclusive or pari passu charge. In case of a pari passu charge where multiple lenders are involved, they are required to be governed by an inter-creditor agreement or any other arrangements amongst such lenders.

· A charge over the underlying immovable property is mandatory wherever the financing is extended for the purpose of acquisition or development of the immoveable property or refinancing of debt incurred in connection with such purposes. Acquisition of immoveable property includes a direct acquisition or an indirect acquisition by way of acquisition of an SPV, or any other ownership interest in an entity that holds an immovable property, directly or through one or more intermediate entities.

· The Credit Facilities Amendment Directions further require provisions of an escrow account for ringfencing the project cash flows; and restrictions on the borrower entity and underlying SPVs from acting to the detriment of the creditors.

Largely the same as for REITs. However, unlike in the case of REITs, the regulations for InvIT financing by banks do not have any mandatory requirement for creating security on immoveable property, regardless of the end use.