RBI Permits Banks to Fund REITs, Repo Rate Steady at 5.25%

The Reserve Bank of India (RBI) on Friday announced that banks will now be allowed to lend directly to Real Estate Investment Trusts (REITs), a step aimed at improving access to long-term funding for the commercial real estate sector.

The announcement was made during the RBI’s first monetary policy review of the 2026 calendar year. The Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 5.25%, continuing its pause after cutting rates by a total of 125 basis points since February 2025.

RBI Governor, Mr. Sanjay Malhotra said the MPC chose to maintain the current policy stance to assess how earlier rate cuts are flowing through the economy, while also keeping an eye on domestic growth trends and global economic developments.

The decision to allow banks to lend to REITs is expected to provide a major boost to the sector, which has emerged as an important platform for owning and managing income-generating commercial properties such as office complexes, shopping malls and logistics parks.

Until now, REITs mainly relied on capital markets for funding, raising money through bond issuances or equity offerings. While banks could invest in REIT units within prescribed limits, direct lending to the trust structure itself was not clearly allowed. As a result, many REITs depended on loans taken by special purpose vehicles (SPVs) that hold individual assets.

With this policy change, REITs will gain access to more stable and longer-term bank financing. This could help lower borrowing costs, support asset acquisitions, enable refinancing of existing debt and encourage portfolio expansion.

Industry experts have long argued that allowing bank credit to REITs would strengthen the real estate investment ecosystem and attract more institutional capital into commercial real estate. The RBI’s move is seen as aligning REITs more closely with other regulated investment vehicles and supporting the steady growth of income-producing real estate assets in the country. Overall, the decision is expected to deepen funding options for REITs while maintaining stability in the broader financial system.

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