RBI revises draft on RE'S AIF investments
On May 19, 2025, the Reserve Bank of India (RBI) released revised draft guidelines concerning investments by regulated entities (REs) including banks and non-banking financial companies (NBFCs) in Alternative Investment Funds (AIFs). The proposed norms aim to enhance oversight and mitigate risks associated with such investments. Key provisions include capping a single RE's contribution to any AIF scheme at 10% of its corpus, with a collective ceiling of 15% for all REs combined. Investments up to 5% of an AIF's corpus by an RE will not face additional restrictions.
However, if an RE's investment exceeds 5% and the AIF has downstream debt exposure to a borrower linked to the RE (excluding equity shares and certain convertible instruments), the RE must make a 100% provision for its proportionate exposure. These guidelines are designed to prevent potential misuse of the investment route and ensure prudent investment practices. The RBI has invited public feedback on these draft norms until June 8, 2025, through its 'Connect 2 Regulate' portal.
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