Reserve Bank of India
The Reserve Bank of India (RBI) said on December 19 regulated entities, such as banks, non-bank lenders and home financiers, cannot invest in alternative investment funds (AIFs) that have directly or indirectly invested in companies that have borrowed money from the lenders.
In a press release, the RBI highlighted regulatory concerns regarding certain transactions involving AIFs by regulated entities that have come to its notice and released guidelines for investments in AIFs by the lenders regulated by it.
“These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs,” the RBI said.
The guidelines, RBI said, have been introduced to address concerns about potential evergreening through this route.
Below are guidelines:
Regulated entities (REs) shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE.
The RBI said lenders need to liquidate its investment in the scheme within 30 days if the AIF scheme, in which lenders are already investors, makes a downstream investment in any such debtor company, the RBI said.
Further, if lenders have already invested into schemes having downstream investment in their debtor companies as on date, the 30-day period for liquidation shall be counted from date of issuance of this circular, the RBI added.
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If lenders fail to liquidate their investments within 30-days, they need to make 100 percent provision on such investments, the RBI said.
The central bank also said that investment by REs in the subordinated units of any AIF scheme with a "priority distribution model" shall be subject to full deduction from RE’s capital funds.
RBI bars lenders from investing in AIFs linked to borrowing companies - Moneycontrol
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