Connect with us

Hi, what are you looking for?

Digital Transformation

RBI issues new guidelines for banks, NBFCs on AIF investments

In a move to address regulatory concerns, the Reserve Bank of India has issued new guidelines for investments in Alternative Investment Funds (AIFs) by regulated entities (REs), including all commercial banks, co-operative banks, financial institutions, and non-banking financial companies.

The RBI’s outlines the concerns raised by certain transactions involving REs and AIFs. These transactions, which have been noticed by the central bank, involve substituting direct loan exposure of REs to borrowers with indirect exposure through investments in units of AIFs.

To curb possible evergreening and ensure prudent investment practices, the RBI has advised the following measures:

Restrictions on Investment in AIFs: Regulated entities are now prohibited from investing in any AIF scheme that has downstream investments, either directly or indirectly, in a debtor company of the RE. For this purpose, a debtor company is defined as any company to which the RE currently has or had a loan or investment exposure anytime during the preceding 12 months.

Liquidation of Existing Investments: If an AIF scheme, in which an RE is already an investor, makes a downstream investment in a debtor company, the RE must liquidate its investment in the scheme within 30 days from the date of such investment by the AIF. If REs have already invested in such schemes, the 30-day period for liquidation counts from the date of issuance of this circular.

Provisions for Non-Liquidation: In cases where REs are unable to liquidate their investments within the prescribed time limit, they are required to make a 100% provision on such investments.

Capital Deductions for Subordinated Units: Investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ will be subject to full deduction from the RE’s capital funds. The ‘priority distribution model’ is defined as per the SEBI circular dated November 23, 2022.

These instructions, issued under various sections of the Banking Regulation Act and the Reserve Bank of India Act, are effective immediately, the central bank stated in a press release.

PR Newswire

Copyright © Glocal Infomart Pvt Ltd. All rights reserved. Usage of content from website is subject to Terms and Conditions.