What RBI’s new REIT, InvIT valuation rule means

On September 22, the Reserve Bank of India (RBI) updated its rules for evaluating units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) held by commercial banks and All India Financial Institutions (AIFIs). The revised framework establishes distinct valuation methods based on whether the units are quoted on recognized stock exchanges or remain unquoted, where the NAV disclosed by the respective trust serves as the basis for valuation.

Quoted units, traded on stock exchanges, employ their market price for valuation, while unquoted units rely on NAV, commonly determined by the trust's operational disclosures. If a REIT or InvIT fails to disclose NAV in line with SEBI guidelines, the RBI prescribes a unit value of Rs 1. The same applies to infrequently traded units under SEBI regulations.

These alterations aim to enhance consistency in the valuation of these investments among regulated financial institutions. For banks and AIFIs managing investment portfolios, the new framework provides a standardized approach, minimizing discrepancies in how similar holdings are assessed. Notably, this framework becomes increasingly significant as REITs and InvITs attract growing institutional investment in India's real estate and infrastructure sectors.

Retail investors remain unaffected by these changes, as market prices of listed units continue to be determined by exchange trading. However, the RBI's clarification may improve the consistency of how regulated financial institutions account for their REIT and InvIT exposures. The industry will likely focus on the quality and consistency of NAV disclosures, particularly for unquoted units, to ensure compliance with the SEBI regulations governing these investment trusts.