In December 2023, the RBI tightened norms to curb potential evergreening through AIFs. It said those measures have now instilled financial discipline among REs. Meanwhile, market watchdog SEBI has also mandated stricter due diligence on AIF investors and assets to block regulatory loopholes.
Under the draft directions issued for public feedback, the RBI proposes:
- A single RE may hold up to 10% of an AIF’s corpus.
- All REs combined may hold up to 15% of an AIF’s corpus.
- RE investments up to 5% of an AIF’s corpus will face no restrictions.
The draft adds a safeguard for debt exposures. If an RE exceeds 5% of an AIF’s corpus and the fund holds downstream debt in a company that also owes the RE, the RE must provision 100% of its proportional exposure.
The RBI may also exempt select AIFs set up for strategic objectives, in consultation with the government.
Stakeholders can submit comments on the draft directions until June 8, 2025.
Why it matters?
These tweaks aim to strike a balance between risk control and capital flow into high-growth sectors.
More regulated access could boost long-term funding for startups, infrastructure and private credit.
“This move could unlock new partnerships between fintechs and AIFs,” said Kunal Varma, CEO and Co-Founder of Freo. “It paves the way for co-lending, credit enhancement and more ecosystem capital. If done right, it will deepen links between alternative funds and mainstream finance.”
–With Reuters inputs
First Published: May 20, 2025 1:15 PM IST
