Clipped from: https://indianexpress.com/article/business/rbi-doubles-collateral-free-loans-to-msmes-to-rs-20-lakh-10517346/?ref=business_pg
Banks to be allowed to lend to REITs
The RBI proposed permitting banks to lend to Real Estate Investment Trusts (REITs) under safeguards. (Source: File)
In a significant move aimed at improving access to credit for micro, small and medium enterprises (MSMEs), the Reserve Bank has proposed doubling the limit for collateral-free loans to the sector from Rs 10 lakh to Rs 20 lakh. The proposal is expected to ease financing constraints for small businesses, many of which struggle to provide adequate collateral despite being viable and employment-generating enterprises.
Limited access to formal credit has long been a challenge for the sector, particularly for micro and small enterprises. By raising the ceiling on collateral-free loans, the central bank aims to encourage banks to lend more freely to MSMEs, reduce their dependence on informal sources of finance and support their expansion and working capital needs.
The move is also expected to strengthen ongoing government and regulatory efforts to improve credit flow to the sector through schemes such as credit guarantees and priority sector lending. With higher collateral-free limits, banks may be better positioned to assess cash flows and business viability rather than relying solely on asset-backed lending, thereby fostering a more inclusive credit environment.
Banks can lend to REITs
In another measure aimed at supporting economic activity, the Reserve Bank has proposed steps to promote financing to the real estate sector by permitting banks to lend to Real Estate Investment Trusts (REITs), subject to specified prudential safeguards. REITs have emerged as an important investment vehicle, enabling retail and institutional investors to participate in income-generating real estate assets such as commercial offices and retail spaces.
Allowing bank lending to REITs could help improve liquidity in the real estate market, particularly in the commercial segment, while also providing banks with a new avenue for diversified lending. However, the RBI has emphasised that such exposure will be governed by prudential norms to ensure that risks to the banking system remain contained.Curated For You
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