RBI issues Investment in AIF Directions, 2025 for regulated entities

Reserve Bank of India has come up with Investment in Alternative Investment Funds (AIF) Directions, 2025 today. It noted that these Directions shall come into force from January 1, 2026, or from any earlier date as decided by a RE as per its internal policy. These Directions shall be applicable to investments by Regulated Entities (REs) in units of AIF Schemes. These 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).

A RE’s investment policy shall have suitable provisions governing its investments in an AIF Scheme, compliant with extant law and regulations. RBI prescribed limits on Investments and Provisioning too. It noted that no RE shall individually contribute more than 10 per cent of the corpus of an AIF Scheme. Collective contribution by all REs in any AIF Scheme shall not be more than 20 per cent of the corpus of that scheme.

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 shall be required to make 100 per cent 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. Further, if a RE’s contribution is in the form of subordinated units, then it shall deduct the entire investment from its capital funds – proportionately from both Tier-1 and Tier-2 capital (wherever applicable).

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