The Reserve Bank of India (RBI) yesterday revised its guidelines concerning the investment of banks, Non-Banking Financial Companies (NBFCs), and other lending institutions in Alternative Investment Funds (AIFs). Previously, in December of the preceding year, the RBI had instructed these entities to refrain from investing in any AIF scheme that included downstream investments in debtor companies.
In a statement issued yesterday, the RBI emphasised the need for consistency in implementation across Regulated Entities (REs). Accordingly, it specified that downstream investments should exclude equity shares in debtor companies of REs but include all other forms of investments.
Previously, the central bank had mandated that if an AIF scheme, in which an RE was already an investor, made a downstream investment in a debtor company, the RE must divest its investment in the scheme within 30 days from the date of such downstream investment. Failure to comply within the stipulated timeframe would necessitate a 100 per cent provision on the investments, as per the RBI’s directive.
However, the RBI has now clarified that the 100 per cent provision requirement will be applicable only to the extent of the RE’s investment in the AIF scheme, which is further invested by the AIF in the debtor company, rather than on the entirety of the RE’s investment in the AIF scheme.
Furthermore, the regulator has stated that investments made by REs in AIFs through intermediaries such as fund of funds or mutual funds are not subject to the norms governing direct investment in AIFs.
