RBI to soon allow banks to invest in REITs, InvITs; to issue detail guidelines by end of May
1. Sebi has put in place regulations for REITs and InvITs and requested RBI to allow banks to participate in these schemes
2. REITs are investment instruments for real estate which are comparable to a mutual funds
3. InvITs are mutual funds like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors
With an aim to revive India's cash crunch infrastructure sector which is already facing a slowdown on account of low sales and demonetisation , RBI Governor Urjit Patel along with six members of monetary policy committee (MPC) on Thursday proposed to allow banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InviTs).
"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," PTI reported quoting the RBI Governor as saying in its first bi-monthly monetary policy for 2017-18 on Thursday.
Real Estate Investment Trusts (REITs) are investment instruments for real estate which are comparable to a mutual fund. It allows anyone to invest in portfolios of large-scale properties in the same way they invest in other industries through purchase of stock.
REITs are similar to stock market wherein shareholders benefit by owning stocks in other corporations - the unit holders of a REIT earn a share of the income produced through real estate investment – without actually having to buy or finance property.
InvITs are mutual funds like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income (after deducting expenditures) to unit holders of InvITs, who pooled in the money.
Presently, banks are allowed to invest in equity-linked mutual funds, venture capital funds (VCFs) and equities to the extent of 20% of their Net Owned Fund (NOF).
Capital markets regulator Securities and Exchange Board of India (Sebi) has put in place regulations for REITs and InvITs and requested the central bank to allow banks to participate in these schemes.
"The policy also lays down other important developmental policies such as expanding investor base in REITs, which will help expand and deepen domestic financial markets," the report said quoting ICICI Bank managing director Chanda Kochhar, as saying.
According to industry body Assocham president Sandeep Jajodia, the RBI's latest announcement of permitting banks to invest in REITs and InvITs will give a boost to the country's real estate sector which has been witnessing slowdown for the past few years, the report said.
"This is an extremely positive step by RBI and opens up a new large set of investors who can invest in InvITs and REITs, in addition to insurance companies and mutual funds (MFs). We have seen healthy investor interest in InvITs and REITs, and the RBI move will provide a big boost for infrastructure and real estate sectors. Moreover, this also provides banks with potentially a huge asset class to invest in," ICICI Securities executive vice president Mridul Mehta, said in a press release.
“RBI’s decision to allow banks to invest in REITs and InvITs will bring sanctity to these instruments from a retail investor’s perspective and the latter will find the confidence to invest in such trust in sync with mutual funds (MFs) as an investment class. Apart from banks participation seen by retail investors as a safe due diligence for investment in such Trusts, these instruments in turn will revive the beleaguered real estate and infrastructure companies and provide much needed relief to the commercial real estate sector that is facing liquidity crunch and delay in completion of existing projects," cited the brokers at the BSE.
"Additionally coupled with the RBI's announcement that the banks may invest in Real Estate Investment Trusts (REITs) is a positive measure for both Banks and the real estate developers; As for the banks it offers an additional important asset class for investment and brings liquidity, while it enhances liquidity for the real estate firms thus freeing up the capital and lowering the cost of capital," FPSB India vice chairman and chief executive officer Ranjeet Mudholkar, said in a press release.
"Overall, the policy is well balanced with new supportive measures on asset reconstruction companies (ARCs). Banks' participation under REITs and InvITs is expected to give more investment avenues to the financial industry," the report said quoting Dena Bank chairman and managing director Ashwani Kumar, as saying.