Indian Central Bank Raises Loan: In a move aimed at strengthening credit flow to small businesses and supporting the real estate sector, the Reserve Bank of India (RBI) on Friday announced a series of measures to improve access to formal financing and enhance last-mile credit delivery. The policy announcements were made by RBI Governor Sanjay Malhotra during his latest policy address.
The central bank’s decisions are expected to provide significant relief to micro, small, and medium enterprises (MSMEs), while also opening new funding avenues for real estate investment trusts (REITs), a segment that has gained increasing importance in India’s property market.
Higher Collateral-Free Loan Limit for Small Enterprises
One of the key measures announced by the RBI is the proposal to double the limit on collateral-free loans for small businesses. Under the revised framework, the maximum loan amount that can be extended without requiring collateral will increase to 2 million rupees (approximately $22,170) from the existing limit of 1 million rupees (around $11,085).
This step is expected to significantly benefit small enterprises that often struggle to secure loans due to the lack of adequate collateral. MSMEs play a critical role in India’s economy, contributing substantially to employment generation and industrial output, yet access to formal credit has remained a persistent challenge for many smaller firms.
By raising the collateral-free loan cap, the RBI aims to encourage banks to lend more actively to small businesses, reduce their dependence on informal sources of financing, and promote sustainable growth in the sector.
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Banks Allowed to Lend to REITs
In another major policy change, the RBI announced that commercial banks will now be permitted to lend directly to real estate investment trusts (REITs), subject to appropriate prudential safeguards. Until now, banks were allowed to provide financing to infrastructure investment trusts (InvITs), but similar access was not available to REITs.
“Upon review and considering the presence of a strong regulatory and governance framework for listed REITs, it is proposed to permit commercial banks to extend finance to REITs, subject to appropriate prudential safeguards,” the RBI said in its official statement.
The central bank also noted that existing guidelines for lending to InvITs would be harmonised to ensure parity with the prudential safeguards proposed for REIT lending. This move is expected to create a more consistent and transparent regulatory framework for investment trusts across sectors.
Positive Market Reaction
The announcement was welcomed by the equity markets, particularly by investors in listed REITs. Shares of Mindspace Business Parks REIT rose 0.5%, leading gains among Indian REIT stocks. Brookfield India Real Estate Trust climbed 0.3%, while Embassy Office Parks REIT gained 0.1% following the RBI’s announcement.
Market participants viewed the policy change as a positive development that could lower financing costs for REITs and improve their ability to expand asset portfolios.
Industry Experts Welcome the Move
Real estate industry leaders have praised the RBI’s decision, noting its potential to accelerate growth in commercial real estate segments such as office and retail spaces.
Anuj Puri, Chairman of real estate consultancy firm ANAROCK Group, said the move would make it easier for REITs to raise capital and improve operational efficiency.
“The move to allow banks to lend money directly to REITs within the rules makes it easier for REITs to raise capital, lowers expenses, and speeds up asset expansion in the office and retail segments,” Puri said.
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Strengthening Credit and Economic Growth
The RBI’s latest measures reflect its broader objective of supporting economic growth by improving credit availability while maintaining financial stability. By targeting both small businesses and the real estate sector, the central bank aims to address key areas that have strong multiplier effects on employment, investment, and overall economic activity.
As India continues to focus on infrastructure development, urbanisation, and entrepreneurship, improved access to bank financing for MSMEs and REITs could play a crucial role in sustaining long-term growth.
Overall, the policy changes signal a proactive approach by the RBI to adapt regulatory frameworks in line with evolving market needs, while ensuring that prudential safeguards remain firmly in place.
