RBI issues guidelines for banks, finance companies investing in alternative investment funds


The Reserve Bank of India (RBI), on Tuesday, issued a set of guidelines for regulated entities (REs)—commercial banks; urban, state, and central cooperative banks; and non-banking financial companies, including housing finance companies—regarding investments in alternative investment funds (AIFs).

The central bank said certain transactions of REs involving AIFs that raise regulatory concerns have come to its notice. "These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs," the RBI said in a release.

The bank said REs shall not make investments in any scheme of AIFs that have downstream investments either directly or indirectly in a debtor company of the RE. The debter company would mean any company to which the RE currently has or previously had a loan or investment exposure.

RBI asked REs to liquidate its investment if an AIF scheme, in which RE is already an investor, makes a downstream investment in any such debtor company. The liquidation should be done within 30 days.

Investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ will be subject to full deduction from RE’s capital funds, the bank said.


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