Lenders can invest up to 20% of the corpus of AIF against 15% allowed in draft guidelines
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The Reserve Bank of India on Tuesday relaxed norms on lenders’ investments in schemes of Alternative Investment Funds (AIFs), allowing an individual lending entity to invest up to 10 per cent of the corpus of an AIF scheme, and collectively allowing all lenders to invest up to 20 per cent of the corpus of any AIF scheme.
If a lender contributes over five per cent of the corpus of an AIF Scheme, which also has downstream investment (excluding equity instruments) in a debtor company of the lender, then the lender shall be required to make 100 per cent provision to the extent of its proportionate investment in the debtor company through the AIF Scheme.
Anil Gupta, Senior Vice-President, ICRA, said the final guidelines are relaxed as these allow lenders to invest up to 20 per cent of the corpus of AIF as against 15 per cent allowed in draft guidelines. Further, in case of any common exposure between AIF and RE, the provisioning required on such investments is proportionate to the share of lender’s investment in AIF corpus and not 100 per cent as required earlier.
According to Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds, when banks invest in AIFs, it provides the latter with greater credibility, supporting both current and future fund raises. From a lender perspective, if they observe that an AIF has made high-quality investments in certain companies, the lender may choose to deepen its relationship with those companies through loans, aiding economic growth with systemic stability.
Equity instrument
“The RBI has explicitly stated that ‘equity instrument’ shall refer to equity shares, compulsorily convertible preference shares (CCPS) and compulsorily convertible debentures (CCD), which provides greater clarity to the ecosystem. While the regulator was right to introduce stricter norms earlier on RE investments in AIF schemes – citing evergreening of loan concerns – the new Governor has appreciated the industry perspective, especially in light of the SEBI new safeguards, and has brought in a resilient and sustainable framework,” he said.
Sudhir Chandi, director at Resurgent India, says lenders will need to strengthen their internal mechanisms to handle investment portfolios with care and close monitoring based on sound investment.
Pointers:
Lenders can invest up to 20 per cent of the corpus of AIF as against 15 per cent allowed in draft guidelines.
2- In case of any common exposure between AIF and RE, the provisioning required on such investments is proportionate to the share of lender’s investment in AIF corpus, and not 100 per cent as required earlier.
3- With relaxed and clear norms, banks’ investment in AIF schemes may rise.
4- Lenders will need to strengthen their internal mechanisms to handle investment portfolios with care and close monitoring based on sound investment.
Published on July 29, 2025
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