Mumbai, May 19 The Reserve Bank of India proposes to cap a single regulated entity’s (RE) contribution to any Alternative Investment Funds (AIF) at 10 per cent of its corpus while collectively, a ceiling of 15 per cent will apply for investment by all REs in an AIF scheme, in the revised draft directions issued on Monday.
Regulated entities like banks, pension funds, and insurance companies often invest in AIFs for diversification.
The RBI revised draft directions, aimed at tightening oversight and preventing potential misuse of the investment route, also stipulate that investments by an RE of up to five per cent of the corpus of an AIF scheme will be allowed without any restriction.
However, 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 will be required to make 100 per cent provisions to the extent of its proportionate exposure.
The proposals further state that the RBI may exempt certain AIFs, in consultation with the government, that have been set up for strategic purposes.
The revised directions issued by the RBI will be applicable prospectively. Existing investments or commitments will follow the extant norms, according to the official statement.
Explaining the rationale for the new directions, the RBI said: "On a review, it is observed that the regulatory measures undertaken by the Reserve Bank earlier have brought financial discipline among the REs regarding their investment in AIFs."
Besides, "SEBI has also issued guidelines requiring inter alia specific due diligence with respect to investors and investments of the AIFs, to prevent facilitation of circumvention of regulatory frameworks", the RBI statement added.
The comments on the draft directions have been invited from the public/stakeholders till June 8, 2025. Comments may be submitted through the link under the ‘Connect 2 Regulate’ Section available on the RBI’s website or may alternatively be forwarded to the Chief General Manager, Credit Risk Group of the RBI.
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