Whalesbook
Indian banks are pushing back against a proposed Reserve Bank of India (RBI) directive that would require Infrastructure Investment Trusts (InvITs) to have a three-year operational track record before they can secure bank loans. Banks argue this rule, planned to take effect July 1, 2026, could significantly slow down the monetization of infrastructure assets and hinder financing for new projects.
This regulatory push comes as India's infrastructure sector is poised for considerable growth. Crisil Ratings forecasts that road sector InvIT assets under management will jump 30% to ₹3.9 lakh crore by the end of fiscal year 2027.
Concerns Over Valuation and Capital Flow
In April, banks officially communicated their concerns to the RBI. They proposed that InvIT lending eligibility should depend on the quality of the underlying assets, not just the age of the trust. Banks argue that the three-year operating history requirement unfairly disadvantages newer trusts that may have high-quality assets but have not yet reached that tenure. This proposed rule, part of the "Commercial Banks - Credit Facilities Amendment Directions, 2026," could create a major hurdle for capital flow. InvITs and Real Estate Investment Trusts (REITs) have already facilitated the unlocking of over ₹1.5 lakh crore.
Balancing Growth and Regulation
Despite banking sector worries, the InvIT market, especially in roads, shows strong growth. Crisil predicts a 30% increase in road InvIT assets by FY27, fueled by asset sales from the National Highways Authority of India (NHAI) and the monetization of Hybrid Annuity Model (HAM) projects. The Securities and Exchange Board of India (SEBI) also recently allowed InvITs to use borrowings exceeding 49% of asset value for capital expenditure to improve performance or capacity.
However, banks fear the RBI's new lending rules could disrupt this positive trend. They warn this might raise the cost of capital for InvITs, making it harder for them to acquire and develop new assets, even as the overall outlook for infrastructure financing remains bright. Total InvIT assets across India are expected to reach ₹21 lakh crore by 2030, emphasizing the need for accessible funding.
Potential Regulatory Misstep
The banks' pushback highlights a potential gap between regulatory aims and market practicalities. While the RBI intends to ensure asset quality and responsible lending, the three-year operational track record rule could unintentionally slow down infrastructure development. This could effectively halt new project financing and asset monetization, particularly for newer entities with strong assets but insufficient operating history.
Historically, India's infrastructure sector has faced significant financing hurdles, including long project timelines and delays, which have led to defaults and prompted stricter oversight. The current RBI proposal, if unchanged, risks bringing back some of these past challenges by erecting an unnecessary barrier. It could also disproportionately impact smaller or newer InvITs that are vital for market diversification and attracting new capital. Focusing on asset quality instead of operating age aligns with attracting global investors, who prioritize an asset's intrinsic value and risk profile.
Dialogue Ahead
The upcoming months will be critical as banks and the RBI discuss these proposed lending norms. Finding a resolution that balances regulatory prudence with the infrastructure sector's practical financing needs will be essential for maintaining the current momentum in InvITs and ensuring continued capital flow into India's vital infrastructure development.