RBI Unveils New Guidelines for Regulated Entities Investing in Alternate Investment Funds

Mumbai: RBI Proposes Relaxed Investment Norms

On Monday, the Reserve Bank of India (RBI) announced a proposal to simplify investment regulations for banks, non-banking financial companies (NBFCs), and other regulated entities in Alternate Investment Funds (AIFs).

Previously, in December 2023, the central bank had established guidelines aimed at addressing concerns regarding potential evergreening through these investments.

According to the RBI, a review indicated that the regulatory actions taken have successfully instilled financial discipline among regulated entities concerning their AIF investments.

Additionally, the Securities and Exchange Board of India (SEBI) has introduced guidelines mandating thorough due diligence regarding AIF investors and their investments to prevent any circumvention of regulatory measures.

In light of these developments, the RBI has released revised draft directions for public and stakeholder feedback regarding investments by regulated entities in AIFs.

The proposed guidelines suggest that a single regulated entity's investment in any AIF scheme should not exceed 10% of the fund's total corpus, while a collective limit of 15% will apply to all regulated entities investing in a single AIF scheme.

Moreover, investments by a regulated entity up to 5% of an AIF's corpus will be permitted without restrictions.

Should any regulated entity's investment surpass 5% of the scheme's corpus, and if the scheme involves downstream debt investments in a debtor company of that entity (excluding equity shares and certain convertible securities), the entity must provision 100% for its proportional exposure.

The RBI also indicated that it might exempt specific AIFs established for strategic purposes, in consultation with the government.

Comments on the draft directions are invited until June 8, 2025.