RBI issues revised draft directions on investment by REs in AIFs, seeks comments
The Hindu
RBI issues revised draft directions on REs investment in AIFs, setting caps and due diligence guidelines to prevent circumvention.
The Reserve Bank of India (RBI) on Monday issued revised draft directions on investment by Regulated Entities (REs) in Alternate Investment Funds (AIFs) after having observed the regulatory measures undertaken by it had brought financial discipline among the REs regarding their investment in AIFs as well as the Securities & Exchange Board of India (SEBI) issuing guidelines requiring specific due diligence with respect to investors and investments of the AIFs, to prevent facilitation of circumvention of regulatory frameworks.
As per the proposals in the draft a single RE’s contribution to any AIF scheme will be capped at 10% of its corpus and collectively a ceiling of 15% will apply for investment by all REs in an AIF scheme.
Investments by a RE up to 5% of the corpus of a AIF scheme will be allowed without any restriction.
According to revisited directions if the investment by any RE exceeds 5% of the corpus of the scheme, and if the scheme has downstream debt investment in a debtor company of the RE (excluding equity shares, compulsorily convertible preference shares and compulsorily convertible debentures), then the RE will be required to make 100% provisions to the extent of its proportionate exposure.
RBI may exempt certain AIFs, in consultation with the government, that have been set up for strategic purposes. The revised directions will be applicable prospectively. Existing investments or commitments will follow the extant norms. The comments on the draft directions are invited from public/stakeholders till June 8.
The Reserve Bank had, on December 19, 2023, issued guidelines relating to investment by the regulated entities (REs) in Alternative Investment Funds (AIFs), with the objective of addressing certain concerns relating to possible evergreening through this route. Subsequently, certain clarifications were issued vide circular dated March 27, 2024.
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