Mumbai–The Reserve Bank of India (RBI) has proposed capping the investment of any single regulated entity (RE)—such as a bank, insurance company, or pension fund—in an Alternative Investment Fund (AIF) at 10% of the fund’s corpus. A collective cap of 15% for all REs in an AIF scheme is also proposed, as per revised draft guidelines issued Monday.
The draft aims to enhance oversight and prevent regulatory circumvention through AIF investments. Investments by an RE up to 5% of the corpus will be allowed without restriction. However, if an RE invests more than 5%, and the AIF makes downstream debt investments in a company already indebted to that RE (excluding equity and convertible instruments), then the RE must make 100% provisioning for its proportionate exposure.
The RBI may exempt certain strategically significant AIFs in consultation with the government.
These revised directions will apply prospectively. Existing investments will remain governed by current norms.
The RBI noted that earlier regulatory efforts had improved financial discipline among REs and highlighted SEBI’s new due diligence requirements for AIFs as part of a broader push to prevent misuse.
Public comments on the draft are open until June 8, 2025, via the ‘Connect 2 Regulate’ section on the RBI website or by writing to the Chief General Manager, Credit Risk Group, RBI. (Source: IANS)
