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Mint
29-07-2025
- Business
- Mint
RBI caps AIF investments by banks and non-banks at 10% of fund's corpus
The Reserve Bank of India (RBI) on Tuesday capped investments by banks and non-bank financiers in alternative investment funds (AIFs) at 10% of the fund's corpus, two months after it proposed relaxations to its 2023 circular. The central bank said no regulated entity should individually contribute more than 10% of the corpus of an AIF scheme and that the collective contribution of all such entities in any AIF should not cross 20% of the fund's corpus. The collective contribution limit is higher than the 15% figure proposed in May's draft circular. The RBI said these norms will apply to commercial banks, cooperative banks, all Indian financial institutions, NBFCs and housing finance companies from 1 January 2026 or earlier. According to Tuesday's circular, if a bank or a non-banking financial company (NBFC) contributes more than 5% of a scheme that also has downstream investments — excluding equity — in a borrower of the lender, the lender will have to make provisions for it. These provisions, said RBI, will be proportional to the lender's investment in the borrower through the AIF. Borrower or debtor in this case means a company to which the lender the lender has had loan or investment exposure during the preceding 12 months. As an example, consider a bank that has invested ₹ 100 crore in a ₹ 1,000 crore AIF, which in turn has invested ₹ 100 crore in a company that has borrowed from the same bank. In the December 2023 circular, the RBI had asked banks to provide for the entire ₹ 100 crore investment. On Tuesday, the RBI said lenders would have to make provisions proportionate to the investments made by the AIF in the common borrower, or ₹ 10 crore in this example. However, if a lender's contribution is in the form of subordinated units, it will have to deduct the entire investment from its capital funds – proportionately from both tier-1 and tier-2 capital, RBI said. Subordinated units are those that are lower in priority for distribution of earnings and assets. 'The guidelines directly seek to address concerns relating to the misuse of the AIF route for evergreening of loans and advancing by using AIF to finance the existing stressed loans portfolio,' said Sudhir Chandi, director at Resurgent India, a category-1 merchant bank. 'By restricting the individual contribution to 10% of the corpus of an AIF, concentration risk will be mitigated.' According to Chandi, the goal is to deter the diversion of funds from AIFs for wrongful purposes. 'The final guidelines are relaxed as they allow regulated entities (REs) to invest upto 20% of the corpus of AIF as against 15% allowed in draft guidelines,' said Anil Gupta, senior vice-president at rating agency ICRA. 'Further, in case of any common exposure between AIF and RE, the provisioning required on such investments is proportionate to the share of RE's investment in AIF corpus and not 100% as required earlier.' On 19 December 2023, RBI asked lenders not to invest in AIFs that had direct or indirect downstream investments in companies that were borrowers in the previous 12 months. Such existing investments were required to be liquidated or fully provided for in 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. Siddarth Pai, co-founder and managing partner, 3one4 Capital said in May after the release of the draft norms that the domestic AIF industry had around ₹ 13.5 trillion in capital commitments as of 31 March. 'The aim is to reach at least ₹ 30 trillion by 2030. For this, the simplification of regulation and the removal of artificial regulatory barriers to investing in alternatives is key," he said.
The Hindu
29-07-2025
- Business
- The Hindu
RBI caps investment by banks, NBFCs at 20% of corpus of AIF scheme
The Reserve Bank of India (RBI) has issued revised guidelines capping investment by Regulated Entities (REs) at 20% of the corpus of an Alternative Investment Fund (AIF) scheme. No RE can individually contribute more than 10% of the corpus of an AIF scheme, as per a circular issued by the RBI on Tuesday (July 29, 2025). 'Collective contribution by all REs in any AIF Scheme shall not be more than 20% of the corpus of that scheme,' it added. These Directions will come into force from January 1, 2026, or from any earlier date as decided by a RE as per its internal policy. As per the Directions if a RE contributes more than five per cent of the corpus of an AIF Scheme, which also has downstream investment (excluding equity instruments) in a debtor company of the RE, then the RE will be required to make 100% provision to the extent of its proportionate investment in the debtor company through the AIF Scheme, subject to a maximum of the direct loan and/ or investment exposure of the RE to the debtor company, the RBI said in the circular. If a RE's contribution is in the form of subordinated units, then it will need to deduct the entire investment from its capital funds— proportionately from both Tier-1 and Tier-2 capital (wherever applicable). The REs include Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks), Primary (Urban) Co-operative Banks/ State Co-operative Banks/ Central Co- operative Banks, All-India Financial Institutions and Non-Banking Financial Companies (including Housing Finance Companies). Commenting on this Sudhir Chandi, director at Resurgent India said, 'The new guidelines aim at better governing and strengthening the risk management process under the Investment Portfolio of the regulated entities. The previous guidelines issued in December 2023 and March 2024 have been repealed. ' 'The guidelines are now brought into alignment with SEBI guidelines on due diligence and investment to ensure uniformity and clarity,' he said. 'The guidelines directly seek to address the concern relating to the misuse of the AIF route for evergreening of the loans and advancing by using AIF to finance the existing stress loans portfolio,' he said adding 'By restricting the individual contribution to 10% of the corpus of an AIF, the concentration risk shall be mitigated.' Similarly, the restriction on the collective contribution of all REs will further spread the risk and entail wider participation of more regulated entities, he said. 'The provisioning norms have been further strengthened to 100 percent in specific cases to discourage the higher level of investment in the designated category of existing borrowers,' he said. The idea is to deter any diversion of funds from the alternative investment fund route for wrongful purposes contrary to the best practices of robust income recognition and assets classification, he stated.
Economic Times
24-07-2025
- Business
- Economic Times
Resurgent India launches Special Situation AIF Fund, targets Rs 500 crore
Synopsis Resurgent India has launched a Rs 500 crore Special Situation AIF Fund, with Rs 100 crore already deployed in a stressed asset. The fund will invest across sectors in distressed assets with revival potential, aiming to deliver stable, risk-adjusted returns over the long term. iStock The fund follows a sector-agnostic approach, targeting assets with high revival prospects and scalable resale potential. Resurgent India, a Sebi-registered Category I merchant banker and investment bank, has launched a Rs 500 crore Category I Alternative Investment Fund (AIF). The company has completed the first close of Rs 100 crore, which has already been deployed in a stressed asset earlier this year. It aims to raise the remaining Rs 400 crore by the end of the current financial year. The fund will focus on acquiring and reviving stressed assets across India, aiming to generate value for investors over the medium to long term. Also Read | Rs 1 lakh become Rs 1 crore in 3 decades? These 6 equity mutual funds just did that The fund's objective is to identify and invest in special situations and distressed assets that hold strong potential for revival. Registered under Sebi's Category I framework, the Special Situation Fund will invest across sectors, including manufacturing, EPC, power, hospitality, healthcare, and real estate. The fund follows a sector-agnostic approach, targeting assets with high revival prospects and scalable resale potential. Geographically, the focus will remain pan-India, concentrating on regions with a high presence of industrial activity and stressed assets. 'The alternative investment sector in India is evolving rapidly, with investors showing increased interest in special situations and stressed asset opportunities. We believe this is the right time to build structured, professionally managed funds focused on value creation through asset revival. With our Rs 500 crore Special Situation Fund, we aim to systematically acquire, revive, and scale assets that hold real potential but face temporary financial or operational distress. Our approach is strategic and patient, with a focus on generating stable, risk-adjusted returns for investors,' said Jyoti Prakash Gadia, Managing Director at Resurgent India. 'We are seeing strong demand from both institutional and private investors who are looking for structured solutions in the distressed asset space. Our fund is designed to bridge that gap by bringing professional management, sector-neutral investment strategies, and disciplined execution. This launch reflects our confidence in India's evolving economic landscape and our commitment to contributing to the revival of stressed industries through targeted interventions,' added the company's director, Sudhir Chandi. Also Read | Who is Madhu Lunawat? The first Indian woman to launch a mutual fund business Resurgent India is a leading financial advisory and investment firm focused on providing solutions across debt syndication, M&A advisory, and structured investments.
