SEBI’s latest consultation paper presents a regulatory contradiction. While the regulator proposes to relax several operational norms for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) in the name of ease of doing business, it simultaneously introduces stricter oversight mechanisms in other areas.
The draft amendments allow InvITs greater investment flexibility by permitting investments in companies that own infrastructure assets, rather than requiring direct asset ownership [VERIFY]. REITs gain expanded borrowing capacity and simplified compliance procedures for routine operational matters. The consultation paper frames these changes as responses to industry feedback about operational constraints.
What emerges less clearly is SEBI’s parallel move to strengthen disclosure requirements for related party transactions within these structures. The same consultation paper mandates enhanced reporting of sponsor transactions and introduces quarterly monitoring requirements that didn’t exist before [VERIFY]. Boards overseeing InvIT and REIT managers now face expanded due diligence obligations despite the headline emphasis on deregulation.
The timing signals regulatory pragmatism. India’s InvIT and REIT sectors have struggled to match the scale seen in mature markets. Current regulations required infrastructure projects to achieve a specific completion threshold before inclusion in InvIT portfolios, creating liquidity challenges for sponsors [VERIFY]. The proposed changes address this by allowing staged asset transfers.
However, the enhanced related-party transaction monitoring suggests that SEBI remains concerned about potential conflicts between sponsors and unitholders. The regulator appears to be trading operational flexibility for transparency requirements. This creates a compliance paradox in which boards must navigate simpler operational rules alongside more complex reporting obligations.
Independent directors on InvIT and REIT boards will find their oversight responsibilities shifting rather than diminishing. The streamlined investment criteria reduce their involvement in project-level approvals but increase their focus on sponsor relationship governance. Risk committees will need to recalibrate their monitoring frameworks to address the new balance between flexibility and transparency.
My Boardroom Takeaway: Directors may wish to review their current InvIT and REIT oversight procedures before these amendments take effect. The apparent deregulation actually redistributes compliance obligations rather than eliminating them. Boards should consider whether their existing related-party transaction frameworks can accommodate the enhanced monitoring requirements that accompany the operational relaxations.