When the Framework Outlives the Project: Evaluating SEBI's March 2026 REIT and InvIT Reforms

[Mridul is a student at Gujarat National Law University.]

India’s Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations 2014 and Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014 (Trust Regulations) were designed on a clean theoretical framework: a special purpose vehicle (SPV) owns an asset, the asset produces cash flows, and the SPV is dissolved at the end of the concession period. It fails to take into consideration an SPV that has to continue to run once its concession has expired as a tax assessment is still pending, or a trust that can no longer invest its excess cash in any useful way since the only available mutual fund schemes are three AAA-rated funds, or a privately held Infrastructure Investment Trust (InvIT) that would like to invest in a greenfield project while its publicly listed counterpart already can.

On 23 March 2026, the board of the Securities and Exchange Board of India (SEBI) approved four amendments to the Trust Regulations based on recommendations from its Hybrid Securities Advisory Committee (HySAC). The amendments cover post-concession SPV holding, liquid mutual fund eligibility, greenfield access for private InvITs and borrowing flexibility for leveraged trusts. These are not small-scale repairs, given a combined real estate investment trust (REIT) and InvIT market with an AUM of over INR 9.25 trillion as of October 2025.

In this article, there is no disagreement with the direction of the reforms. Each addresses a genuine operational problem. What it argues is that the reforms are structurally incomplete in three ways: the SPV amendment puts a hard deadline on an open-ended problem; the borrowing flexibility reform creates an unacknowledged conflict with a concurrent RBI proposal; and combined, the reforms confirm that SEBI continues to respond to practitioner friction rather than anticipate it.

A One-Year Window for a Structurally Open-Ended Problem

According to the pre-amendment regime, an SPV owned by an InvIT was required to invest a minimum of 90% of its assets in infrastructure projects. A concession is terminated, and the infrastructure project will no longer exist in the SPV. This SPV subsequently fails the 90% test, placing the InvIT in technical regulatory breach by just holding on to it. The operational challenge, which is reported in the SEBI consultation paper of 5 February 2026, is that SPVs that are subsequently post-concession are seldom clean-wound up. They still have to pay for income tax, GST, outstanding arbitration with the concessioning authority, and project defect liability cases. The investment manager cannot close any of these based on a schedule of its preference.

The amendment has now allowed InvITs to hold such SPVs up to one year of the later of: expiry of concession, resolution of any pending litigation or expiry of the defect liability period with the investment manager obliged to exit or inject a new infrastructure asset within that period. The difficulty is that the one-year clock runs on events the investment manager cannot control. An assessment under the Income Tax Act 1961 may remain unchallenged by objections, appeals by the Commissioner, and tribunal proceedings, over a period of years. The amendment does not count regulatory approval time as part of the one-year calculation, but does not exclude litigation timelines either. There is no way that an investment manager who is awaiting a tribunal order to be applied in order to dissolve the SPV can extend the window.

The amendment corrects the unchanging compliance issue at the expiry of the concession but not the structural issue: InvITs will regularly form post-concession SPVs of a duration of more than one year due to causes entirely beyond their control. SEBI would have implemented a supervised extension mechanism, similar to CIRP timeline extensions under the Insolvency and Bankruptcy Code 2016, where investment managers may seek more time where material litigation truly impedes exit, and standardized valuation norms in this transitory case of SPVs.

Enlarging the Eligibility of Liquid Fund, Right Direction, but Incomplete Reasoning

The amendment reduces the minimum credit risk value (CRV) of liquid mutual fund investments made by REITs and InvITs to 10 (AA and higher) as opposed to the 12 (AAA-only instruments in Class A-I of the Potential Risk Class matrix of SEBI). The rationale is sound: to have a few AAA-rated funds to handle a trust with multiple thousand crore of assets is a concentration risk in the very tool that is intended to contain its working capital. AA-rated instruments are not speculative and the shift is not a dramatic change in credit quality but rather a meaningfully broader set of schemes. The issue is SEBI has not indicated why the correct stopping point is 10.

The PRC matrix was created to categorise mutual fund schemes, rather than prudential restrictions on treasury management on a trust level. CRV is a measure of credit risk and not liquidity risk which is what is actually relevant in the event that a REIT has to redeem units of the funds quickly to cover expenses or service debt. Applying the same criterion to two different regulatory purposes, unjustifiably, is indicative of a conventionally selected threshold. SEBI has provided the Alternative Investment Fund Regulations 2012 which impose a different set of cash deployment norms on the Category I and Category II AIFs. Every repair is justifiable on its own. Together, they indicate a lack of a standardised structure of treasury management among institutional investment vehicles.

Greenfield Access to Private InvITs: Harmonisation but Not Conditionality

The amendment permits privately placed InvITs to make up to 10% of their asset value in greenfield infrastructure projects, equivalent to what can already be done by publicly listed InvITs. The policy explanation, eliminating an anomaly category, is logical. The execution is not. A publicly listed InvIT has continuous disclosure requirements, independent valuations and secondary market liquidity to unitholders. Even after the minimum investment was dropped to INR 25 lakh, a privately placed InvIT does not have an easy way out and less disclosure obligations. Greenfield assets are subject to construction risk, revenue ramp-up risk, and regulatory approval risk, which are literally different to a completed revenue-generating asset. The 10% limit is applicable regardless of whether a road project was financially closed with signed EPC contract and an early-stage port development where the land acquisition is still pending. That difference is important to private InvIT investors who have limited liquidity. Harmonisation would be formal, not substantive, to apply the same numerical cap, without minimum project readiness conditions. At least, SEBI needs to direct that greenfield projects owned by the private InvITs must have reached financial close prior to being included in the 10% cap.

Borrowing Flexibility and the RBI Controversy No One is Talking About

The most significant amendment increases the allowed end-use of fresh borrowings of InvITs whose net consolidated borrowings are between 49 and 70% of asset value. In this leverage band, InvITs could only borrow to develop or acquire infrastructure assets in the past. The March 2026 amendment now allows borrowing of capital to be used on existing assets, major maintenance of road projects, and refinancing of existing debt as long as the amount of the principal does not go up and the accumulated interest does not get refinanced. The logic of operations is good. Mature road portfolios involve capital expenditure cycle concession obligations. It is costly and sluggish to enforce a trust to issue fresh units each time it requires to resurface an asset. It is commercially viable to permit incremental borrowing within the existing leverage envelope. The conflict lies elsewhere. This reform however is directly at odds with an RBI proposal which is concurrent. The draft Commercial Banks (Credit Facilities) Second Amendment Directions 2026 of the RBI suggest that banks be allowed to lend to listed REITs, but aggregate bank exposure to a REIT and its SPVs and holdcos is capped at 49% of asset value, tuned to the precise base leverage limit in the Trust Regulations. An InvIT at 55% leverage, which SEBI now permits to borrow for maintenance capex, cannot use bank credit for those purposes. It must access capital markets debt or non-banking financial companies, at higher cost and with different covenant structures. The SEBI amendment was approved on 23 March 2026; the RBI consultation closed on 26 February 2026. Both interventions proceeded without coordination, leaving a gap where the permitted activity and the permitted funding source do not align. Neither regulator has acknowledged this.

Conclusion: The Case for a Policy Framework

The four March 2026 reforms are all justified in their own right. The SPV amendment addresses a real compliance issue. The expansion of the liquid fund decreases the risk of concentration. The greenfield harmonisation eliminates an anomaly in categories. The increased borrowing authority reflects how infrastructure assets are actually financed over their lifecycle. All this cannot be disputed. The issue that is debatable is whether fixing each friction point as it emerges, without defining what the Trust Regulations are intended to guard against, is adequate for a market projected to reach 21 lakh crore in InvIT AUM by 2030. Issues that are that large need proactive regulation, not responsive patchwork. The analysis leads to three interventions.

First, SEBI ought to establish a monitored extension framework to post-concession SPV holding where investment managers could seek a time-limited extension where material litigation hinders exit in a year, with valuation norms of SPVs in such transitional state.

Second, SEBI and RBI should coordinate, preferably via the Financial Stability and Development Council, to address the inconsistency between the permission of above-49% InvIT borrowing by SEBI, and the 49% limit on bank lending by RBI, such that the activity allowed and the source of funds actually allowed are in fact the same.

Third, SEBI ought to issue a policy framework document on the regulatory purpose of trust vehicles at the level of the investor. The nature of the protections that are suitable to greenfield exposure, leverage limits, and SPV governance depend on whether they are largely yield distribution instruments or infrastructure financing mechanisms. In the absence of that clarity, HySAC will continue to find out the issues of the last year, and SEBI will continue to resolve them.