Lease Rental Discounting for Commercial Property in India: How LRD Works

What is lease rental discounting and how does it work?

Lease rental discounting is a secured loan against the future rent from a commercial property you already own and have let out. The lender mortgages the property, takes an assignment of the rent, and usually routes the tenant's payments through an escrow account so that the instalment is paid first. The amount is sized on the rent itself, typically the lower of a share of the discounted value of future net rent and a share of the property's value, and the tenure cannot outrun the remaining lease or lock-in.

It is not the same product as a standard loan against property for business. A business LAP is sized mainly on the property's value and your business cash flows. An LRD is sized mainly on the lease and the tenant. Both keep you as the owner. Both are offered by public sector banks, private banks, NBFCs and housing finance companies. Exact figures differ by lender.

This guide explains how lease rental discounting works in India as of 5 November 2026, how lenders size it, what RBI's commercial real estate rules say about loans repaid from rent, when an LRD beats a LAP or an unsecured business loan, and a worked illustrative example. It builds on our guide to LAP LTV and tenure by property type.

Key terms in plain words

Term	What it means
Lease rental discounting (LRD)	A loan against future rent from a let property, repaid from that rent, with the property mortgaged and the rent assigned to the lender.
Net present value (NPV) of rent	The discounted value today of the rent due over the certain period of the lease, after any margin the lender applies.
Lock-in	The period of the lease during which the tenant cannot exit or cut the rent. Lenders size the loan on this certain period.
Escrow / rent assignment	The tenant pays rent into a lender-controlled account; the EMI is taken first and any surplus is released to you.
Loan against property (LAP)	A loan sized on the property's value and your income or business cash flows, usually with a longer tenure than an LRD.
Commercial real estate (CRE)	Under RBI's bank directions, an exposure whose repayment depends primarily on rent or sale proceeds of commercial property.
CRE-RH	Commercial real estate for residential housing projects. A separate RBI category with a lower risk weight than CRE. It is not the usual home for a commercial LRD.
Tenant quality	How dependable the lessee is: company status, rating, government or PSU status, payment history.

How lease rental discounting is sized

Published lender pages checked on 5 November 2026 describe the same three tests, even when the percentages differ.

1. Rent test. Take the rent due over the lock-in or residual lease the lender will count, net of tax deducted at source where applicable, and discount it to a present value. Apply the lender's share of that NPV (published examples show about 80% to 85%).
2. Value test. Multiply the lender's valuation of the property by its LRD value cap (published examples show about 50% to 75%).
3. Tenure test. Cap the tenure at the shorter of the remaining lock-in or lease and the lender's product maximum. On the pages we checked, that maximum was commonly 9 to 10 years; one large private bank page allows up to 15 years for commercial or specialised property.

The sanction is the lowest of the three. Some housing finance pages also state the EMI as a share of net rent (one published figure is up to 80% of EMI to net rental), which is another way of saying the rent must cover the instalment with a margin.

Escrow is the usual repayment structure. The tenant remits rent to a designated account; the lender takes the EMI; surplus, if any, is released to you under the escrow waterfall. A letter from the lessee agreeing to pay into that account is a common condition of sanction.

LRD vs business LAP vs unsecured business loan

	Lease rental discounting	Business loan against property	Unsecured business loan
What the lender sizes on	Future rent from a let commercial property, capped by a share of value	Property value (LTV) and your business cash flows	Your business cash flows and credit profile
Typical property	Ready commercial or specialised, already leased	Residential, commercial or industrial, owned	None
Typical tenure (published)	Up to 9 to 10 years, or remaining lease / lock-in; one page up to 15	Mostly up to 15 years; one page up to 20	Often 1 to 5 years
Repayment	Rent via escrow / assignment	Your income or business cash flows	Your business cash flows
What matters most	Tenant quality, lock-in, net rent, title	Title, valuation, business DSCR, age at maturity	Turnover, profitability, credit score
When it fits	Stable corporate or institutional tenant, long lock-in	You need a longer tenure or the property is not let	Smaller need, no property, or speed over amount

For how a LAP LTV is set when RBI does not cap it, see loan against property LTV and tenure. For cost and structure against an unsecured facility, see loan against property vs business loan. The cash-flow test that sits behind both LAP and LRD is the same idea as DSCR, applied to rent instead of project cash flows.

What RBI's rules say about loans repaid from rent

RBI does not prescribe an LRD product or an LRD LTV. What it does prescribe, for commercial banks, is how to classify an exposure whose repayment depends on rent.

Under paragraph 125 of the Reserve Bank of India (Commercial Banks, Credit Facilities) Directions, 2025, an exposure is commercial real estate when repayment depends primarily on the cash flows generated by the asset, generally lease or rental payments or the sale of the asset. Paragraph 126 says CRE exposures secured by commercial real estate attract a risk weight of 100%.

Paragraph 130(2)(iii) of the same Directions addresses loans against future rent receivables directly. It says a few banks have offered finance to owners of existing shopping malls, office premises and similar assets, to be repaid out of the rentals. Even though such exposures do not fund the acquisition of the property, repayment can be sensitive to a fall in rentals, so they are generally classified as CRE. The same paragraph then sets the escape hatch: if the lease has a lock-in not shorter than the tenor of the loan, and there is no clause that allows a downward revision of rent during the loan period, the bank shall classify the exposure as non-CRE, and shall record a reasoned note.

Paragraph 131 carves out CRE-RH for loans to builders for residential housing projects, with a lower risk weight of 75%. A loan against rent on an existing commercial office or shop is not CRE-RH. That distinction matters for the bank's capital, and it is one reason LRD pricing and documentation can be tighter than a home loan or a residential LAP.

These classification rules are for commercial banks. NBFC and housing finance company LRD products follow each lender's Board-approved policy and RBI's separate directions for those entities. Always read the sanction letter and the Key Facts Statement.

As of 5 November 2026, the policy repo rate is 5.50%, after RBI's 25 basis point increase on 7 October 2026. Floating rate LRD and LAP instalments linked to an external benchmark move at their next reset. That is a rate fact, not an LRD rule.

Under RBI's Commercial Banks Credit Facilities Directions, 2025, paragraph 130(2)(iii), a loan repaid from rent on existing commercial property is generally CRE unless the lease lock-in covers the full loan tenor and rent cannot be cut. CRE exposures secured by commercial real estate attract a 100% risk weight under paragraph 126 of those Directions, as updated and checked on 5 November 2026. CRE-RH under paragraph 131 is for residential housing projects and carries a 75% risk weight, not the usual home for a commercial LRD.

Eligibility, documents and what lenders check

Lender practice varies, but the public pages checked on 5 November 2026 converge on the same checks.

Who can apply. Individuals, proprietors, partnerships, LLPs and companies that own the property. Some schemes are aimed at corporates; others take salaried and self-employed owners. One large private bank page requires the lessee to be a company.

Property. Ready commercial or specialised property that is already leased. Residential rental income is often not eligible for an LRD. Title must be clear; the lender will mortgage the property.

Lease. A registered lease or leave-and-licence with a lock-in the lender can count. Published pages commonly want a residual lease of about three years or more; one housing finance page cites a minimum lease vintage of three months. The stronger the lock-in relative to the loan tenor, the better the file fits RBI's non-CRE conditions above.

Tenant quality. Banks, public limited companies, rated corporates, MNCs, PSUs and government or semi-government tenants are preferred on several published pages. A weak or informal tenant is the most common reason an LRD is declined or converted into a plain LAP.

Documents lenders typically ask for.

• KYC of the borrower (and guarantors, if any)
• Property title chain, tax receipts, approved plan and occupancy where applicable
• Registered lease or leave-and-licence, lock-in schedule, and any side letters
• Rent receipts or bank credits showing rent actually received
• Last two to three years' ITRs and financials (more for entities)
• Bank statements (often six to twelve months)
• Existing loan sanctions and statements
• Lessee's consent or letter for escrow / direct remittance, where required

Tax deducted at source on rent. Lenders size on net rent. In an illustrative file, tax deducted at source on commercial rent is often assumed at about 10% of the gross rent when the statutory threshold is crossed; confirm the live rate, threshold and section with your tax adviser, because the Income-tax Act, 2025 restructured the old rent-TDS provisions. Do not send the lender gross rent figures and expect them to ignore TDS.

Credit score and account conduct. A clean repayment record still matters. An LRD is secured, but it is not a substitute for a damaged credit profile.

Worked illustrative example

Illustrative example, assuming a ready commercial office with a lender valuation of ₹1.20 crore, monthly gross rent of ₹1.50 lakh, illustrative tax deducted at source of 10% so net rent is ₹1.35 lakh, a 7-year (84-month) lock-in, an illustrative discount and loan rate of 11% a year, an 80% share of the NPV of net rent, and a 50% cap on property value: the NPV of the net rent is about ₹78.84 lakh, 80% of that NPV is about ₹63.08 lakh, 50% of value is ₹60 lakh, so the LRD sanction is the lower figure, ₹60 lakh, over 84 months. The EMI at 11% is about ₹1,02,735, or about 76% of net rent.

Step	Figure
Lender valuation	₹1.20 crore
Gross rent / month	₹1.50 lakh
Net rent after assumed 10% TDS	₹1.35 lakh
Lock-in counted	84 months
NPV of net rent @ 11%	≈ ₹78.84 lakh
80% of NPV	≈ ₹63.08 lakh
50% of property value	₹60.00 lakh
LRD sanction (lower)	₹60.00 lakh over 84 months
EMI @ 11%	≈ ₹1,02,735 (≈ 76% of net rent)

Same property as a commercial LAP, assuming a 55% LTV (inside the 50% to 60% published commercial band from our 1 November 2026 check) and a 15-year tenure at the same 11% rate: the LAP amount is ₹66 lakh and the EMI is about ₹75,015. The LAP gives a slightly higher amount and a lower EMI, but the EMI must be paid from business or other income unless the rent is also assigned. The LRD gives a cleaner match between the tenant's rent and the instalment, over a shorter, lease-bound tenure.

If the lock-in were only 36 months, the same assumptions give an NPV of about ₹41.24 lakh and an LRD of about ₹32.99 lakh. Short lock-ins shrink LRD hard. If the gross rent were ₹2.50 lakh a month with the same 84-month lock-in, the value cap of ₹60 lakh would bind before the rent test, so the LRD would still be ₹60 lakh. High rent does not lift a low value cap.

These numbers were recomputed in a script saved with this draft. They are not a loan offer. Every lender will use its own discount rate, share of NPV, value cap, tenure cap and escrow terms.

When LRD beats LAP, and when it does not

Prefer LRD when:

• The property is let to a strong corporate, bank, PSU or institutional tenant on a registered lease with a lock-in that covers the loan you need.
• You want the rent, not your operating cash flow, to service the debt.
• You are comparing offers and the LRD amount is close to what a commercial LAP would give, with a cleaner escrow structure.
• You care about RBI's CRE classification: a lock-in that covers the full tenor, with no downward rent revision, is the condition banks use to treat the exposure as non-CRE.

Prefer a business LAP when:

• The property is self-occupied, vacant, or residential.
• The tenant is weak, the lease is short, or the lock-in is much shorter than the funds you need.
• You need a 12 to 15 year tenure that outruns the lease.
• Your business cash flows are strong and you want maximum flexibility on end-use. See also working capital vs term loan if the need is mixed.

Prefer an unsecured business loan when:

• The need is smaller and shorter, and the cost of mortgage, valuation and escrow is not worth it.
• You cannot or will not mortgage the property.

Many owners run both quotes on the same asset. Ask for a commercial LAP quote and an LRD quote, then compare the Key Facts Statements on amount, APR, tenure, prepayment rules and escrow conditions.

A checklist before you apply

1. Collect the registered lease, lock-in schedule, rent receipts and the tenant's profile.
2. Work out net rent after tax deducted at source, not just the gross figure in the lease.
3. Measure the lock-in against the tenure you want. If the lock-in is short, expect a smaller LRD or a push toward LAP.
4. Get a realistic view of the lender's valuation; LTV and value caps apply to the valuer's figure.
5. Line up title, tax receipts and approvals before the file goes in.
6. Ask whether the lessee will sign an escrow or direct-remittance letter.
7. Compare at least two LRD offers and one LAP offer on the KFS, not on the headline rate.

How MoneyKarma helps

MoneyKarma is a loan distribution platform for Indian businesses and real estate developers, with 90+ lenders. Not a lender. Our lending partners include public sector banks, private banks, NBFCs and financial institutions, and their LRD and LAP limits differ. We help you test whether your lease and tenant support an LRD, compare it with a business LAP on the same property, and share your file with the lending partners you choose. Our team responds within 24 hours on average. MoneyKarma has facilitated ₹2,500+ Cr of credit. Every credit decision, amount, rate and tenure is set by the lender. See loan against property, or share your requirement.

This guide is general information, not financial, legal or tax advice. Figures from lender pages are published maximums as of 5 November 2026 and change without notice. Confirm terms in each lender's sanction letter and Key Facts Statement.