RBI gives banks and NBFCs a breather on AIF investments

The has also exempted investments by regulated entities (RE) in AIFs through intermediaries such as fund of funds or mutual funds. This could result in reversal of some of the AIF provisions which weighed on the performance of banks and NBFCs in the third quarter ended December 2023. For instance, Kotak Mahindra Bank had made a provision of ₹190 crore and RBL Bank had made a contingent provision of ₹115 crore on AIF investment.

"With a view to ensuring uniformity in implementation among the REs, and to address the concerns flagged in various representations received from stakeholders, it is advised that downstream investments shall exclude investments in equity shares of the debtor company of the RE, but shall include all other investments, including investment in hybrid instruments," RBI said in the circular issued Wednesday.

The RBI has said that provisioning will be required only to the extent of the RE's investment in the AIF scheme that is further invested in the debtor company, rather than on the entire investment in the AIF scheme.

"The RBI has addressed the issue regarding equity investments by AIFs in debtor companies of regulated entities, clarifying that these will no longer be a provisioning or investment concern for regulated entities who are already investors or looking to invest in such AIFs," said Tejesh Chitlangi, Joint Managing Partner, IC Universal Legal.