RBI's New Guidelines for Regulated Entities' Investment in AIFs
UPSC Prelims Subject
Indian Economy (Financial Markets, Banking Sector Regulation, Capital Markets, Alternative Investment Funds - AIFs).
Key Highlights from the News
The Reserve Bank of India (RBI) has issued new guidelines for investments in Alternative Investment Funds (AIFs).
These guidelines are applicable to Regulated Entities (REs) such as banks and NBFCs.
Under the new rule, all Regulated Entities combined should not invest more than 20 percent of the total capital (corpus) of an AIF scheme.
A single Regulated Entity cannot invest more than 10 percent in an AIF scheme.
The RBI has also introduced strict provisioning norms against reinvestment through an AIF in a company that is a debtor company of a Regulated Entity.
This move primarily aims to prevent the practice of "evergreening of loans" which banks use to hide bad debts.
COMMENTS