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RBI gives REIT, INvIT bonanza to banks

Move opens up investment avenue for banks flush with excess liquidity

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The Reserve Bank of India (RBI) has allowed banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), providing banks with an investment opportunity to deploy their surplus liquidity. It will also help inject funds into the cash-starved infrastructure sector.

With many real estate companies planning to list REITs, it is a good opportunity for banks, according to both bankers and real estate developers.

REITs are unit funds where the subscriber has a fractional ownership in a property which is already leased with a assured return. And about 90% of the dividends from the fund are distributed to the unit holders.

Banks are allowed to invest in equity-linked mutual funds, venture capital funds (VCFs) and equities to the extent of 20 per cent of their Net Owned Fund (NOF) the investment into REITs will be within this limit.

"It is proposed to allow banks to invest in REITs and InvITs within this umbrella limit. Detailed guidelines will be issued by May-end 2017," the RBI said in its first bi-monthly monetary policy for 2017-18.

The Securities and Exchange Board of India (Sebi) has put in place regulations for REITs and InvITs about two years back but it failed to take off due to taxation issues. Sebi had requested the RBI to allow banks to participate in these schemes.

Rajeev Talwar, executive director, DLF, said, “It is a safe investment class and will give banks an opportunity to have higher and assured returns from the real estate sector. Real estate companies are already planning REITs and it will get listed soon.”

While for the banks it reduces their dependence on the Statutory liquidity ratio( investment into government bonds) creating a fresh avenue for investment and also reduces the riskier direct investment into real estate.

Chanda Kochhar, chief executive officer and managing director, ICICI Bank, said the monetary policy has laid down important developmental policies such as expanding investor base in REITs which would help to expand and deepen the domestic financial markets.

Real estate consultancy firm JLL estimates that there is as much as 229 million square feet of office space in India compliant with REIT, even if half this space gets listed the total REIT listing could be worth Rs 1.25 trillion.

A senior official from HDFC said, "It may take about 7 to 8 months for the REITs to get listed and then banks can subscribe to their Initial publc offering. It will help transparency in the real estate sector and banks can get high yielding returns”

Ravindra P Marathe, chief executive officer and managing director, Bank of Maharashtra, said, “Banks investments opportunity in REITs will allow banks to diversify their non SLR portfolio and also reduce the dependence on commercial real estate segment on Direct Bank credit."

REALTY BOOST

  • With many real estate companies planning to list Reits, it is a good opportunity for banks, according to bankers, real estate developers
     
  • Sebi had put in place regulations for Reits and InvITs about two years back, but failed to take off due to taxation issues
     
  • For banks, it reduces their dependence on the statutory liquidity ratio creating a fresh avenue for investment
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