Previously, banks were only expressly permitted to participate / invest in units issued by InvITs, subject to certain conditions prescribed by RBI. By way of notification dated October 14, 2019 titled ‘Lending by banks to InvITs’ (‘InvITsNotification’), the RBI has now permitted banks to provide credit facilities to InvITs, subject to the following key conditions:

i.      Banks may lend only to those InvITs where none of the underlying special purpose vehicles, which have existing bank loans is facing ‘financial difficulty’[1].

ii.       While banks are permitted to lend to InvITs for acquisition of shares in other entities, such credit facilities are required to be in compliance with paragraph 2.3.7.4 (iv) of the RBI Master Circular dated July 1, 2015 on ‘Loans and Advances – Statutory & Other Restrictions’, which sets out the limited circumstances under which banks may lend to promoters for this purpose.

As per the InvITs Notification, banks will be required to put in place a board-approved policy on exposures to InvITs to inter-alia cover the appraisal mechanism, conditions for sanction, internal limits and monitoring mechanism for lending to InvITs. Adherence to these conditions will be subject to a half-yearly review conducted by a bank’s audit committee.

[1] As defined under the RBI circular dated June 7, 2019 on ‘Prudential Framework for Resolution of Stressed Assets’