Banks’ Investment In REITs And InvITs Will Boost Real Estate, Infrastructure Funding
Workers assemble scaffolding at the construction site of Majestic metro station, developed by Bangalore Metro Rail Corp. (Photographer: Sanjit Das/Bloomberg)

Banks’ Investment In REITs And InvITs Will Boost Real Estate, Infrastructure Funding

The Reserve Bank of India’s (RBI) decision allowing banks to invest in real estate and infrastructure investment trusts will boost funding for the two sectors while providing lenders another asset class to park their funds in, analysts and bankers said.

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are mutual fund-like listed instruments that pool income-generating properties or projects to raise funds from investors.

The RBI’s move shows the commitment of regulatory authorities towards REITs, said Rajeev Bairathi, executive director and head of capital markets at property consultant Knight Frank India.

While there is already a high level of interest from global and domestic financial institutional investors towards participating in REITs, another addition in the form of banks would only benefit these investment instruments.
Rajeev Bairathi, Executive Director and Head-Capital Markets, Knight Frank India

The decision will give developers better access to capital, said Ashutosh Limaye, head-research at property consultant JLL. “At the same time, banks can de-risk their investment to a greater extent as REITs are predominantly considering income-building properties.”

RBI said in its statement that banks would be allowed to invest up to 20 percent of their net-owned funds in these instruments. For banks, this is a more liquid option than lending directly to the real estate sector, said B Sriram, managing director, State Bank of India.

The liquidity in REITs and InvITs needs to be built up over a period, so that may be a reason why the regulator has decided to allow banks to invest.
B Sriram, MD, State Bank of India

For smaller banks which don’t have the means to participate in real estate or infrastructure lending, this route can definitely prove attractive, he added.

It provides banks a huge asset class to invest in, agreed Mridul Mehta, executive vice-president at ICICI Securities, besides giving a big boost to the infrastructure and real estate sectors.

Kranti Mohan, partner at Cyril Amarchand Mangaldas, however, cautioned that the devil may be in the detail as one will have to examine the operational guidelines, which will be issued by May-end. The RBI has put to rest a debate on whether investments in REITs and InvIT should be categorised as capital market exposure or lending exposure. Such investments will be considered exposure to capital markets within the 20 percent umbrella limit for equities, equity mutual funds and venture capital funds, he said.

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