What is Infrastructure Investment Trusts (InvITs)? Daily Current Affairs

Why is it on the news? The Reserve Bank of India (RBI) announced (October 2023) measures to rejuvenate financial markets and release liquidity. Its intention is to facilitate access to capital for investors and companies.
Withdrawal of Lending Restrictions:
• Removal of the ₹10 crore ceiling on lending against listed debt securities. As a result, banks can now lend more against these instruments.
Easier IPO Financing:
• The cap on IPO financing for retail investors has been increased from ₹10 lakh to ₹25 lakh.
Increased Lending for Shares:
• The cap has increased for individuals, from ₹20 lakh to ₹ 1 crore.
• The RBI is considering whether to revise the limits for loans backed by units of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), among other proposals.
Why Now? There are challenges both globally and domestically:
• Trade threats, curbs on H-1B visas and other geopolitical flashpoints in West Asia, and Europe.
• The outflow of foreign investors and rise in USD.
• India’s equity markets have struggled to attract liquidity and momentum.
• The IPO market is bubbling with high-profile IPOs in the pipeline.
What can be expected?
• Retail Participation: greater access to credit will stimulate participation from smaller investors in IPOs and markets.
• Liquidity: improved flow to primary markets and greater availability of financial intermediation.
• Confidence: comfort with funding constraints will recuperate investor confidence going forward in Indian markets.
• Diversification: facilitate to large corporate groups change towards lesser dependence on bank funding.

Real Estate Investment Trusts (REITs):
A financial instrument that collects funds from investors and invests in income-producing real estate assets (i.e. office space, shopping malls, hotels).
• Objective: To allow smaller investors to receive returns on investment from real estate, without having to invest directly in a property.
• Structure: Operate like mutual funds – investors own “units” in the REIT and earn returns by receiving dividends (rental income), and capital appreciation of the underlying asset.
• Regulation: Introduction of the REIT regulations by SEBI in 2014 in India.
• Examples in India: Embassy Office Parks REIT, Mindspace REIT and Brookfield India REIT.

Infrastructure Investment Trusts (InvITs):
• A collective investment vehicle that collects funds from investors and invests in infrastructure projects (e.g. roads, highways, power transmission, and telecom towers).
Objective:
To allow a mechanism to fund infrastructure projects and allowing investors to receive stable returns from the infrastructure assets.
• Structure: Like REIT’s, investors get ‘units’ and receive returns from revenue collected from the operation of the infrastructure projects (e.g. tolls charged, power charges).
• Regulation: SEBI introduced InvITs in 2014.
• Examples in India: IRB InvIT (roads) and PowerGrid InvIT (electric transmission).