Summary: The regulatory framework for borrowing by Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) involves separate requirements prescribed by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). While SEBI permits InvIT borrowings up to 70% of asset value subject to prescribed conditions, RBI limits aggregate bank exposure to an InvIT or REIT and its underlying holding companies and special purpose vehicles to 49% of the trust’s asset value. The RBI (Commercial Banks – Credit Facilities) Third Amendment Directions, 2026, dated 10 June 2026, effective from 1 October 2026, introduce additional requirements concerning asset eligibility, operating cash flows, refinancing, repayment structures and security arrangements. The two frameworks also differ in their calculation methods: SEBI considers consolidated net borrowings after specified cash adjustments, whereas RBI assesses aggregate bank exposure against gross asset value without deducting cash balances. Consequently, a trust may comply with SEBI’s borrowing ceiling but remain ineligible for further bank financing. The article compares the two regulatory frameworks, explains practical borrowing and refinancing examples, examines restrictions applicable to under-construction and financially distressed projects, and provides a compliance checklist for InvITs and REITs approaching banks for finance.
Understanding SEBI Borrowing Limits and RBI Lending Conditions
- Introduction
- A. Borrowings
- How much can the trust borrow and how much can banks lend?
- Why the same borrowing can produce two percentages?
- Can a bank finance every asset permitted by SEBI?
- B. Re-financing
- Can a new bank loan repay an existing SPV loan
- C. Re-payment
- Do the proposed loan terms meet the lending conditions
- What to check before approaching a bank
- Conclusion
- Regulatory references
Introduction
A listed InvIT has assets worth ₹1,000 crore, no cash balance and existing aggregate bank exposure of ₹450 crore. It proposes another bank loan of ₹150 crore. If SEBI permits its borrowings to reach 70%, can the bank provide the entire amount?
To answer this question, we must check two things: how much the InvIT can borrow under SEBI’s rules and how much banks can lend under RBI’s rules. These limits serve different purposes and are calculated differently. The assets held by the trust, the use of the loan and its repayment terms also matter.
RBI’s amendment dated 10 June 2026 applies from 1 October 2026, or an earlier date if adopted by a bank in full.
The comparison below explains the principal differences relevant to bank borrowing by InvITs and REITs:
| Point | SEBI requirements | RBI requirements |
|---|---|---|
| What is regulated | SEBI governs consolidated borrowings and deferred payments of the trust, including its underlying entities. | RBI governs the bank’s lending decision, aggregate bank exposure and loan terms. |
| How much can be borrowed | InvITs: up to 70%, subject to additional conditions above 49%, including an AAA-equivalent issuer rating, distribution history, permitted use and prescribed unitholder approval. REITs: up to 49%. Applicable conditions also apply at lower borrowing levels. | For both, aggregate exposure of all banks to the trust and its underlying HoldCos and SPVs cannot exceed 49% of asset value. The bank’s Board may prescribe a lower limit. |
| How the limit is calculated | Consolidated borrowings and deferred payments are measured after deducting cash and cash equivalents. Cash and cash equivalents are also excluded from the asset value used in this calculation. | Bank exposure is measured against gross asset value, without netting cash. It includes bank loans, bank-held bonds, debentures and commercial paper, and credit equivalents of non-fund facilities. |
| Which assets support eligibility | InvITs: at least 80% in completed, revenue-generating projects; under-construction projects are capped at 10%.
REITs: at least 80% in completed, rent or income-generating properties. |
As per eligibility under RBI regulations, investment in at least 80% in completed, revenue-generating projects is not sufficient. The project must also have positive cash outflow.
RBI does not allow lending under construction projects |
| Refinancing an SPV loan | Regulation 20(3) allows re-financing as permitted end use of borrowed funds. But capacity under Regulation 20 does not prescribe any eligibility conditions for refinancing. | RBI regulations do not allow unconditional lending. Following conditions are prescribed.
InvITs: the existing facility must relate to a completed project that has commenced commercial operations. ReITs: the project must be completed with a Completion Certificate, Occupancy Certificate or equivalent. Additionally, refinancing cannot be done for SPVs with existing regulated-entity loans that face the specified financial difficulty.
|
| Repayment and security | Regulation 20 does not prescribe equivalent general requirements for every bank loan’s repayment structure and security package. Applicable SEBI borrowing conditions and approvals remain relevant. | Finance must be fully secured with enforceable lender protections. Bullet or ballooning repayments are restricted; repayments may follow projected cash flows. Bank investment-portfolio bonds, debentures and commercial paper are exempt from this repayment-structure restriction. |
A. Borrowings
How much can the trust borrow and how much can banks lend?
SEBI permits an InvIT to borrow up to 70% of its asset value, subject to prescribed conditions. RBI, however, caps aggregate bank exposure to the InvIT and its underlying HoldCos and SPVs at 49%. Therefore, an InvIT seeking to borrow beyond 49% must arrange the excess from non-bank sources, while meeting SEBI’s conditions. For example, assuming no cash or other adjustments, an InvIT with assets worth ₹1,000 crore may borrow up to ₹700 crore, but aggregate bank exposure cannot exceed ₹490 crore.
For REITs, both SEBI and RBI prescribe a maximum limit of 49% of asset value. However, they calculate the amount differently. SEBI considers total borrowings and deferred payments after the prescribed cash adjustments, while RBI considers aggregate bank exposure against gross asset value. Therefore, even though the percentage limit is the same, the permissible borrowing amount may still differ.
Why the same borrowing can produce two percentages?
Assume a trust has gross assets of ₹1,000 crore, including ₹100 crore in cash, and consolidated borrowings of ₹500 crore, entirely from banks. There are no deferred payments or other bank exposures.
SEBI calculation: (₹500 crore − ₹100 crore) ÷ (₹1,000 crore − ₹100 crore) = 44.44%.
RBI calculation: ₹500 crore ÷ ₹1,000 crore = 50%.
The trust is below SEBI’s 49% threshold but above RBI’s bank-exposure ceiling. Cash reduces the SEBI ratio in this example; it does not reduce outstanding bank exposure for RBI’s test.
Can a bank finance every asset permitted by SEBI?
An InvIT must invest at least 80% of its asset value in completed, revenue-generating projects, while investment in under-construction projects is capped at 10%. RBI adds an additional cash-flow condition for bank lending. For example, a completed road project may collect ₹10 crore in tolls but pay ₹12 crore in operating expenses. It generates revenue, but its operating cash flow is negative. To qualify for bank finance, not only at least 80% of the InvIT’s asset value must be in completed, revenue-generating projects but also such projects should generate net positive operating cash flows for at least one year.
For a REIT, consider a completed property collecting ₹10 crore in cash rent while paying ₹12 crore in operating expenses over the same period. It generates rental income but has negative operating cash flow. The REIT must therefore check its eligible underlying assets against RBI’s 80% test and the one-year track record, rather than rely only on rental income.
B. Re-financing
Can a new bank loan repay an existing SPV loan
A road SPV has a ₹300 crore construction loan. Its InvIT wants to take a new bank loan to repay that facility. While the road remains under construction. Although InvIT regulations allow such refinancing, RBI’s eligibility conditions for re-financing do not make it possible for banks to re-finance this road project.
C. Re-payment
Do the proposed loan terms meet the lending conditions
Suppose a trust proposes a five-year loan with most of the principal payable in the final year. Even if its borrowing ratios and assets meet the requirements, the repayment schedule needs examination under RBI’s restriction on bullet or ballooning repayments. Instalments may be aligned with projected cash flows, but must not concentrate a disproportionate share of principal repayment near maturity. The exception for bank investment-portfolio debt instruments should be checked separately.
Security also needs early attention. For example, if an SPV’s property is already charged to another lender, the manager must examine existing consents and arrangements before offering security for the new loan. RBI requires full security and lender protections; SEBI borrowing approval alone does not resolve these documentation issues.
As seen above bank financing and refinancing in the light of new amendment has changed significantly. Following are quick check points that one needs to check by an InvIT before approaching a bank for loan:
What to check before approaching a bank
- Check whether separate SEBI and RBI calculations cover the trust, HoldCos and SPVs, including deferred payments, cash, bank-held debt instruments and non-fund facilities.
- Check whether the bank-exposure calculation uses the prescribed latest valuation and whether the bank applies a lower internal limit.
- Check whether listing, asset-allocation, completion and one-year operating cash-flow requirements are supported by asset-wise records.
- Check whether the purpose and fund flow are clearly documented. For refinancing, identify the original loan, project stage, relevant certificates and any financial difficulty at the SPV.
- Check whether projected cash available at trust level supports debt servicing alongside distributions and existing commitments, including periods of lower collections.
- Check whether the repayment schedule meets RBI’s restrictions and whether any claimed exception applies to the proposed instrument.
- Check whether the trust deed permits the borrowing and whether title, existing charges, security, escrow arrangements and lender consents support the proposal.
- Check whether applicable ratings, unitholder approvals and permitted-use conditions are met, and whether new covenants restrict future debt or acquisitions.
- Check whether existing InvIT facilities need changes before renewal or enhancement. RBI permits specified non-conforming existing loans to run off until maturity, but renewal or enhancement requires compliance.
Conclusion
An asset being permitted under SEBI’s investment rules does not, by itself, mean that RBI’s conditions for bank finance are satisfied. InvITs and REITs must therefore assess each borrowing proposal against both frameworks, separately checking RBI’s asset eligibility, operating cash-flow, exposure, refinancing, repayment and security requirements. Compliance with SEBI’s investment and borrowing limits alone is insufficient to establish eligibility for bank finance
Regulatory references
SEBI Infrastructure Investment Trusts Regulations 2014: Regulations 18 and 20. SEBI Real Estate Investment Trusts Regulations 2014: Regulations 18 and 20. SEBI circular dated 15 May 2026 on permitted use of fresh borrowings where InvIT net borrowings exceed 49%.
RBI Commercial Banks Credit Facilities Third Amendment Directions 2026 dated 10 June 2026, RBI/2026-27/109: paragraphs 133A–133O for REITs, paragraph 137A for InvITs and paragraph 4 for commencement and transitional treatment. This article addresses the bank-borrowing issues discussed above; separate acquisition-finance requirements may apply to purchases of stakes in SPVs or HoldCos.
By Rutuja Umadikar – Deputy Mnagaer
