Latest news with #SiddarthPai
Mint
26-05-2025
- Business
- Mint
Alternative funds plead for a review as RBI's rules threaten to squeeze capital
Alternative investment funds have urged the banking regulator to ease rules after the central bank capped combined investment by banks, non-bank lenders and other regulated entities into such vehicles, according to four people with knowledge of the development. The Reserve Bank of India (RBI) last week issued a circular introducing an overall cap, barring entities regulated by it from investing more than 15% in alternative investment funds (AIFs). In case of a ₹100 crore fund, banks, cooperative banks, financial institutions and non-bank financial companies (NBFCs) put together cannot invest more than ₹15 crore. That's a setback for the ecosystem, which has so far depended on domestic financial institutions to raise the bulk of its capital. AIFs include private equity, venture capital, hedge funds, and other vehicles that invest in alternative assets, such as real estate, startups, and infrastructure. Also read: Why AIFs need regulatory innovation for next phase of growth Ceiling review The AIF industry has asked the RBI to either make it a group-wise ceiling or to relax it to 25%, the people said on the condition of anonymity. Apart from reviewing the ceiling, the industry has also urged the RBI to relook 'applying this circular retrospectively", said Siddarth Pai, cofounder 3one4 Capital, an early-stage venture capital firm. 'We hope to see some relaxations being made to this." The Indian AIF industry had capital commitments worth around ₹13.5 trillion as of 31 March. It aims to at least double it to ₹30 trillion by 2030. Most of these venture capital, venture debt and private equity firms raise capital from domestic high-net-worth individuals, family offices, banks and other financial institutions, mutual funds, insurance companies and corporates. 'The aggregate ceiling of 15% being too low… would severely impact the access that the domestic fund management industry has to an important stream of institutional capital," said Swapneil Akut, partner-investment funds & securities law at S&R Associates, a law firm. 'If one RE (regulated entity) invests up to its entitlement of 10%, then only 5% is left for other REs." On 19 May, however, RBI said banks, non-bank lenders and financial institutions may get to invest up to 10% in the corpus of AIFs, in a relief for the sector that faced a central bank clampdown in December 2023. There will be no restriction on regulated entities such as banks for investing up to 5% in the AIF scheme's corpus, RBI proposed. However, if the AIF scheme invests in a company that has borrowed from the bank, then the regulated entities must make full provision to the extent of its proportionate exposure, the draft circular said. Also Read: Managing market volatility: How AIFs turn risk into opportunity Gift City beckons Fund managers are also looking at ways to raise capital outside of the domestic institutions to mitigate the regulatory risks. 'We hope to shift the bulk of our fund-raise focus overseas and hope to work under GIFT City jurisdiction. Indian regulations have sadly not been conducive to ease of business for AIFs," said Anand Lunia, founding partner, India Quotient, a homegrown early-stage venture capital firm. 'The government reduced capital gains tax, which is such a positive step. But there are sections in regulations that perhaps intrinsically believe AIFs are out to scam." India Quotient is currently raising its fifth $130 million ( ₹1,000 crore) VC fund. Regulatory scrutiny Investments by banks, NBFCs and other financial services companies in AIFs have been under the banking regulator's scrutiny. On 19 December 2023, RBI asked lenders not to invest in AIFs that have direct or indirect downstream investments in companies that were borrowers in the last 12 months. Such existing investments were required to be liquidated or fully provided for within 30 days. This prompted several large private banks to make significant provisions against these investments in their financials for the last two quarters of FY24. These guidelines were aimed at preventing instances of evergreening by using the AIF route to repay existing, potentially distressed loans. In March this year, however, the regulator clarified that these investments would exclude equity shares, compulsorily convertible preference shares and compulsorily convertible debentures. It also said the provisioning will be required only to the extent of investment by the regulated entity in the AIF scheme, which is further invested by the AIF in the debtor company, and not on the entire investment of the entity in the AIF scheme. In Monday's circular, RBI said the regulatory measures have brought 'financial discipline among the REs regarding their investment in AIFs". Also Read: Do AIF investors need easier accreditation?
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Business Standard
19-05-2025
- Business
- Business Standard
RBI proposes relaxation in norms for investment in AIFs by banks, NBFCs
The Reserve Bank of India (RBI) on Monday sought to ease norms on investments by regulated entities (REs) in Alternative Investment Funds (AIFs) by proposing revised guidelines that cap investment by REs in any AIF scheme at 15 per cent, with the contribution of a single RE capped at 10 per cent of the scheme's corpus. In December 2023, the RBI had barred REs from investing in AIFs that have investment in existing and recent borrowers, after markets regulator Securities and Exchange Board of India (Sebi) found instances of evergreening of loans and circumvention of other market regulations through different AIF structures. Several AIFs had approached the regulators with concerns that REs were struggling to honour capital calls, following the restrictions. Later in March 2024, the RBI eased provisioning norms. 'On a review, it is observed that the regulatory measures undertaken by the Reserve Bank have brought financial discipline among the REs regarding their investment in AIFs,' the RBI said, adding that Sebi has also issued guidelines requiring specific due diligence with respect to investors and investments of the AIFs, to prevent facilitation of circumvention of regulatory frameworks. "This is a more palatable approach as compared to a blanket ban. However, the proposed limits seem overly restrictive, particularly for collective exposure of all REs being limited to 15 per cent. Separately, exemption should also be provided by the RBI on fund of funds (FoF) structures as was done in the earlier March, 2024 circular," said Nandini Pathak, partner, Bombay Law Chambers. Also Read According to the proposed guidelines, investment by an RE up to 5 per cent of the corpus of an AIF scheme shall be allowed without any restriction. However, if the investment exceeds 5 per cent of the corpus of the scheme, and if the scheme has a downstream debt investment in a debtor company of the RE, then the RE shall be required to make 100 per cent provisions to the extent of its proportionate exposure. Additionally, the central bank has said that it may exempt certain AIFs, in consultation with the government, that have been set up for strategic purposes. These revised norms will be applicable prospectively, the RBI said, adding that existing investments or commitments will follow the extant norms. The central bank has sought comments from stakeholders by June 8 this year. 'This move by the RBI is significant to rupee capital formation through AIFs,' said Siddarth Pai, co-chair, IVCA Regulatory Affairs Council, adding that banks and non-banking financial companies (NBFCs) are important institutional investors in AIFs. 'The RBI placed restrictions on them investing in AIFs due to certain regulatory findings. Since then, Sebi issued specific due diligence in consultation with AIFs, which addresses these findings. This circular is a relaxation basis for this work by Sebi and the AIF industry,' he further said.
Time of India
22-04-2025
- Business
- Time of India
VCs face a reality cheque as NISM exam deadline nears
Several venture capital fund managers are heading back to the classroom, not to learn how to pick the next unicorn or finalise valuation, but to clear a 150-mark exam that some of them said is designed for hedge fund managers, not startup investors. A few of them have failed to clear the test, while some have cleared it after multiple attempts. VC fund managers ET spoke with said the failure was not due to lack of expertise, but because the theory-heavy test wasn't tailored for them. The Securities and Exchange Board of India in a circular over a year ago said at least one key personnel on the investment team of an alternative investment fund (AIF), registered or domiciled in India, should have the National Institute of Securities Market (NISM-Series-XIX-C) certification, which requires clearing of this test. The deadline to comply with this requirement is May 9. VC managers question the need for such an exam at this stage in their careers. It has now become a regular topic in boardroom conversations and daily meetings. A deep-tech fund manager, speaking on the condition of anonymity, said he cleared the exam on his second attempt, but some of his peers are still struggling. Some funds are asking compliance teams or junior staffers to take the exam to meet the mandate. Some of them who cleared it said the content of NISM is overwhelmingly geared towards Category-III AIFs, which deal with public market trades and derivatives. Category-I and -II AIFs , like most venture capital and private equity funds, have vastly different mandates, they said. Homegrown VC firm 3one4 Capital said it complied with the requirement shortly upon the launch of the test. Siddarth Pai, its founding partner, pointed out that an exam was not a determinant of a good VC.
