RBI Proposes 10% Cap On RE Investments In Alternative Investment Funds – Details Here

Mumbai: The Reserve Bank of India proposes to cap a unmarried regulated entity’s (RE) contribution to any Alternative Investment Funds (AIF) at 10 in keeping with cent of its corpus whilst jointly, a ceiling of 15 in keeping with cent will follow for funding through all REs in an AIF scheme, within the revised draft instructions issued on Monday. 

Regulated entities like banks, pension finances, and insurance coverage firms regularly put money into AIFs for diversification. The RBI revised draft instructions, geared toward tightening oversight and combating attainable misuse of the funding direction, additionally stipulate that investments through an RE of as much as 5 in keeping with cent of the corpus of an AIF scheme shall be allowed with none restriction.

However, if the funding through any RE exceeds 5 in keeping with cent of the corpus of the scheme, and if the scheme has a downstream debt funding in a debtor corporate of the RE (except for fairness stocks, compulsorily convertible desire stocks, and compulsorily convertible debentures), then the RE shall be required to make 100 in keeping with cent provisions to the level of its proportionate publicity.

The proposals additional state that the RBI would possibly exempt sure AIFs, in session with the federal government, which were arrange for strategic functions. The revised instructions issued through the RBI shall be acceptable prospectively. Existing investments or commitments will apply the extant norms, in line with the reputable remark.

Explaining the explanation for the brand new instructions, the RBI mentioned: “On a review, it is observed that the regulatory measures undertaken by the Reserve Bank earlier have brought financial discipline among the REs regarding their investment in AIFs.”

Besides, “SEBI has also issued guidelines requiring inter alia specific due diligence with respect to investors and investments of the AIFs, to prevent facilitation of circumvention of regulatory frameworks”, the RBI remark added.

The feedback at the draft instructions were invited from the general public/stakeholders until June 8, 2025. Comments could also be submitted during the hyperlink below the ‘Connect 2 Regulate’ Section to be had at the RBI’s site or would possibly however be forwarded to the Chief General Manager, Credit Risk Group of the RBI.