In today’s revised draft circular, the RBI said a single lender’s contribution to any AIF scheme shall be capped at 10 per cent of its corpus.
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FRANCIS MASCARENHAS
Citing the improved financial discipline shown by lenders, the Reserve Bank of India on Monday proposed more easier norms for lenders to invest in Alternative Investment Funds (AIF), according to a statement.
The central bank had in December 2023 barred lenders from investing in AIFs which had downstream exposures — direct or indirect — to borrowers of the lender. This was done to prevent scope of evergreening of loans. Taking into account industry representation, the RBI eased rules in March last year.
In today’s revised draft circular, the RBI said a single lender’s contribution to any AIF scheme shall be capped at 10 per cent of its corpus. Collectively, a ceiling of 15 per cent shall apply for investment by all lenders in an AIF scheme.
“Investments by an RE (registered entity) up to five per cent of the corpus of an AIF scheme shall be allowed without any restriction. If the investment by any RE exceeds five per cent of the corpus of the scheme, and if the scheme has a downstream debt investment in a debtor company of the RE (excluding equity shares, compulsorily convertible preference shares and compulsorily convertible debentures), then the RE shall be required to make 100 per cent provisions to the extent of its proportionate exposure,” the revised guidelines say.
The regulator may exempt certain AIFs, in consultation with the government, that have been set up for strategic purposes. The revised directions will be applicable from a prospective effect. The RBI has sought public feedback on the revised draft circular by June 8.
Industry cheers
“Governor Sanjay Malhotra’s bold recalibration paves the way for capital from RBI regulated entities, to fuel AIFs — a transformative boost for India’s entrepreneurial landscape,” said Gopal Srinivasan, Chairman and MD at TVS Capital Funds.
Jyoti Prakash Gadia, MD at Resurgent India- A SEBI-registered category 1 merchant bank, said the proposed revised guidelines are intended to bring regulatory norms in alignment with those issued by SEBI on the subject.
“The earlier stringent guidelines had been stipulated by RBI with a view to preventing the instances of evergreening by utilisation of the AIF route to repay the existing potential distressed loans of the lenders. Since an approach of discipline has been exhibited by the regulated entities subsequently to the previous guidelines, the partial relaxation are expected to bring in better utilisation of the AIFs,” he said.
He added that considering the dearth of overall investible funds, all avenues need to be encouraged while at the same time ensuring adequate provisions in the specified cases. Proper end use of funds and preventing circumvention of guidelines also needs to be taken care of simultaneously, he stressed.
Published on May 19, 2025
