Banks May Be Allowed to Lend to InvITs, says RBI

The Reserve Bank of India (RBI) has reportedly notified that banks would be permitted to lend to Infrastructure Investment Trusts (InvITs). However, the sanctioning of funds to InvITs will be subject to certain conditions.

An Infrastructure Investment Trust is a collective investment instrument which works very much similar to mutual funds. They are designed to pool money from individuals and institutional investors and directly invest them in assets linked to infrastructure to generate an income over time.

Lending loans to InvITs will be allowed if they comply with parameters such as the leverage ratio, underwriting norms concerned with Special Purpose Vehicle (SPV) and board-approved policies, among others.

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According to sources, the notification issued by the central bank directed the banks to sanction loans to InvITs ‘without prejudice to generality’. The banks were also directed to implement stringent credit policies and tighter scrutinisation mechanisms for funds which are linked to SPVs.

In a statement, the RBI has requested banks to come up with a board-approved policy which shall, in turn, monitor all the mechanisms concerned with sanctioning of loans to InvITs. The banks will scrutinise the sanctioning criteria, appraisal mechanism and internal limits among others before lending the loans.

However, RBI added that only InvITs which are linked to SPVs with ongoing loans and is experiencing financial difficulty would be eligible to avail loans from banks.

For any clarifications/feedback on the topic, please contact the writer at viswanathan.v@cleartax.in