With only 30% of AIF capital currently sourced from within the country, Srinivasan said, “It’s a very welcome change, especially given that banks are very large stakeholders.”
He also called on the central bank to raise the proposed cap on collective investments by regulated entities in a single AIF scheme from 15% to 25%. “If all regulated entities put together hold 25%, they honestly can’t make any structural changes,” he explained, pointing out that most major fund decisions require the approval of 75% of investors by value. Raising the limit to 25%, he argued, would give more room for domestic capital without compromising governance.
Under the draft directions issued for public feedback, the RBI proposes:
- A single regulated entity may hold up to 10% of an AIF’s corpus.
- All regulated entities combined may hold up to 15% of an AIF’s corpus.
- Regulated entity investments up to 5% of an AIF’s corpus will face no restrictions.
Srinivasan said the broader venture capital industry supports this change and expects the Indian Venture Capital Association to formally recommend it during stakeholder consultations. The RBI’s proposal also builds in a level of self-regulation, he noted, by capping participation of regulated entities, thereby ensuring that the remaining majority of investors maintain the discipline and avoid past practices like evergreening through round-tripping.
Another key highlight of the draft is its formal recognition of instruments like compulsorily convertible debentures (CCDs) and CCPSs—tools vital to venture investing. Srinivasan called this a “fantastic” move that aligns regulatory thinking with how the market actually operates. “These are the tools of our trade for future price discovery,” he said.
He also praised the RBI’s broader shift toward transparency in policymaking, referring to recent efforts by Governor Sanjay Malhotra to encourage public consultation before finalising any regulatory changes. “There should be no, as they called it, ‘midnight bombs’ that suddenly appear in the form of policy announcements,” Srinivasan remarked.
He placed this change in the context of what he sees as a broader move toward deregulation in India’s economic policy environment. “We’re actually seeing a new wind blowing, both in BKC and in Mint Street,” he said, referring to the finance ministry and RBI headquarters, respectively.
Watch accompanying video for entire conversation.
