5 months ago
64
The Reserve Bank of India (RBI) has tightened norms for Regulated Entities (RE) like all banks, all India Financial Institutions and Non-Banking Financial Companies (including Housing Finance Companies) to prevent evergreening of loans via investments in Alternative Investment Funds (AIFs).
The regulator said though REs do make investments in units of AIFs as part of their regular investment operations, certain transactions of REs involving AIFs had raised regulatory concerns.
“These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs,” the RBI said in a circular.
“In order to address concerns relating to possible evergreening through this route, it is advised that REs shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE,” the regulator said.
“If an AIF scheme, in which RE is already an investor, makes a downstream investment in any such debtor company, then the RE shall liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF,” it added.
As per the circular if REs have already invested into such schemes having downstream investment in their debtor companies as on date, the 30-day period for liquidation would be counted from date of issuance of this circular.
In case REs are not able to liquidate their investments within the above-prescribed time limit, they have to make 100% provision on such investments, the central bank said in the circular.
“In addition, investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from RE’s capital funds,” it said.
The instructions have become effective immediately, the RBI said.
