The Reserve Bank of India (RBI) has announced modifications to the norms governing investments of banks, non-banking financial companies (NBFCs), and other lenders in Alternative Investment Funds (AIFs).
In a statement released on Wednesday, the RBI clarified that downstream investments by AIFs shall exclude investments in equity shares of the debtor company of the regulated entity (RE). However, it will include all other types of investments, including those in hybrid instruments.
This move comes after the RBI’s directive in December of last year, which prohibited banks, NBFCs, and other lenders from investing in any AIF scheme that had downstream investments in a debtor company. Downstream investments refer to the actual investment made by an AIF in a company using the funds raised from AIF investors.
Under the previous guidelines, if an AIF scheme, in which a regulated entity is an investor, made a downstream investment in a debtor company, the RE was required to liquidate its investment in the scheme within 30 days from the date of the downstream investment.
However, the RBI has now clarified that the 100 percent provision requirement will only apply to the extent of the RE’s investment in the AIF scheme, which is further invested by the AIF in the debtor company. This means that the entire investment of the RE in the AIF scheme will not be subject to the 100 percent provision requirement.
The RBI also specified that investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not covered under these norms on investment in AIFs.
These modifications aim to ensure uniformity in implementation among regulated entities investing in AIFs. The RBI continues to monitor and adjust regulations to maintain stability and transparency in the financial sector.
