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Daily News Analysis » Private: March 2024 » Alternative Investment Funds (AIF)- Revised Norms: 28 Mar 2024

Alternative Investment Funds (AIF)- Revised Norms: 28 Mar 2024

RBI has modified norms for lenders having exposure to AIFs.

Table of Content

Revised Norms for Regulated Entities (REs) Investing in Alternative Investment Funds (AIFs):

Objective:

  • to address the concerns raised by stakeholders and ensure uniformity in implementation.

Provisions Requirement:

  • REs now only need provisions to the extent of their investment in an AIF scheme.
  • REs no longer need to set aside provisions for the entire investment in the AIF scheme.

Uniformity in Implementation:

  • The new directive aims to ensure uniformity in implementation among the REs.
  • This is in response to concerns raised by various stakeholders.

Preventing Evergreening of Loans:

  • Previously, the RBI had prevented REs from making investments in AIFs either directly or indirectly.
  • This was done to stop the evergreening  (giving a fresh loan to avert default on an existing one) of loans.

About AIF:

  • It is an investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing in accordance with a defined investment policy.
  • They are regulated by the Securities and Exchange Board of India (SEBI).
  • AIF investment strategies are tailored to suit the needs of high-net-worth individuals, family offices, and institutional investors.

About REs:

  • Regulated entities refer to financial institutions and organizations that operate within the framework of specific regulations set by regulatory authorities.
  • Regulated entities act as gatekeepers, ensuring compliance with regulations, and implementing measures to prevent financial crimes, such as money laundering and fraud.

Why in news?

RBI has modified norms for lenders having exposure to AIFs.