MUMBAI, Feb 13 (Reuters) - India's central bank on Friday proposed that banks be allowed to lend to Real Estate Investment Trusts with safeguards such as an exposure ceiling of 10% of the bank's eligible capital base and mandatory monitoring of the end use of funds.
A REIT is an entity that owns and manages income-generating real estate assets such as malls and offices. These entities pool money from investors, like mutual funds, to invest in properties and distribute the income as dividends.
In a draft circular, RBI proposed that banks be allowed to lend only to listed REITs with a minimum three years of operations and a positive net distributable cash flows in the preceding two financial years.
The entity should also not have been subject to any adverse regulatory action during the previous three years, RBI said.
The central bank said the aggregate credit exposure of lenders to the borrowing REIT and its underlying special purpose vehicles together should not exceed 49% of the value of its assets as on March 31 of the previous financial year.
Also, the exposure should also be limited to 10% of the bank's capital base.
"A bank shall strictly monitor the end use of funds lent to REITs to ensure that this route is not being used to finance activities which are not permitted," according to RBI's draft guidelines.
The RBI had first announced the move in its monetary policy review last week. The proposed opening of the sector to bank credit is expected to spur fresh funding into the sector and stoke growth.
The central bank has invited feedback on the draft circular before March 6 before finalizing the guidelines, which will come into effect from July.
Reporting by Ashwin Manikandan
Source: Reuters