RBI Caps Bank Investment in AIF at 10%

Mumbai, Jul 29 (PTI) The Reserve Bank on Tuesday capped contributions by a single regulated entity (RE), including banks and NBFCs, at 10 per cent of the corpus of an Alternative Investment Fund (AIF) scheme.

Also, collective contribution by all REs in any AIF Scheme should not be more than 20 per cent of the corpus of that scheme, said the Reserve Bank of India (Investment in AIF) Directions, 2025.

REs refer to banks, NBFCs and All-India Financial Institutions.

The RBI had issued guidelines in December 2023 and later in March 2024 prescribing the regulatory guidelines in respect of investment by the REs of the Reserve Bank in AIFs.

The guidelines have been reviewed, inter alia, taking into account industry feedback as well as the regulations issued by the Securities and Exchange Board of India (Sebi) relating to specific due diligence of investors and investments of AIFs, the RBI said in a circular on Tuesday.

"No RE shall individually contribute more than 10 per cent of the corpus of an AIF Scheme," the circular said.

Collective contribution by all REs in any AIF Scheme shall not be more than 20 per cent of the corpus of that scheme.

"If a RE contributes more than five per cent of the corpus of an AIF Scheme, which also has downstream investment in a debtor company of the RE, then the RE shall be required to make 100 per cent provision to the extent of its proportionate investment in the debtor company through the AIF Scheme, subject to a maximum of the direct loan and/ or investment exposure of the RE to the debtor company," it said.

The circular also said the RBI may, in consultation with the government, exempt certain AIFs from the scope of the existing circulars and the revised Directions.