Subsequent to Securities and Exchange Board of India’s (SEBI) suggestion on permitting participation of banks in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), the Reserve Bank of India (RBI) recently announced to allow banks to invest in REITs and InvITs. The central bank is also determined in issuing the detailed guidelines by end of May.
Colliers Capital Markets and Investment Services View
While clarity from the RBI will be forthcoming over the next few months, the move to allow banks to invest up to 20% of their Net-Owned Funds in distinct asset class is a very positive move for both the eventual success of REITs as well as for banks. Banks will have an opportunity to diversify their investment portfolios and participate in a new asset class in a very efficient manner.
Colliers Research View
In the last two years SEBI has taken several crucial steps to create an investor-friendly environment for REITs and InvITs. Following the key declarations on exemptions for REITs on Minimum Alternate Tax in 2015, Dividend Distribution Tax in 2016 and clearing mutual fund investments in these vehicles in Jan 2017, the recent RBI’s statement on permitting the banks to invest in REITs is likely to trigger optimism among the stakeholders solidifying their strategies to launch REITs. As already banks can invest 20% of their net owned funds on equity-linked mutual funds, venture capital funds and stocks, now the recent influential move of enabling banks to invest in REITs is likely to create an opportunity for diversification of these funds to a distinct asset class. However, as per the RBI guidelines banks cannot invest more than 10% of the unit capital of an REIT / InvIT. With great interests shown from global financial institutions in partaking in Indian REITs, we foresee that the add-on in the form of banks should help in expediting REITs listing. We also endorse that the authorities should soon release a comprehensive document with all key notices in REITs in order to throw light on dominant grey areas to aid the stakeholders waiting for REITs to get pace on ground.