MUMBAI: RBI has relaxed its earlier norms on alternate funding funds, which required lenders to make full provisions for their investments in AIFs if the fund invested in an organization that the financial institution lent to.
Under the revised norms, provisioning is required solely for the portion of the financial institution or finance firm’s funding within the AIF scheme that’s additional invested within the debtor firm, and never the whole funding within the AIF scheme as required earlier.Also, funding by lenders in AIFs by intermediaries corresponding to fund of funds or mutual funds should not affected.
In Dec 2023, RBI had requested banks to totally present for investments in AIFs, which went on to spend money on corporations that the banks had lent to. The guidelines had been aimed toward stopping ‘evergreening’ – an underhand observe the place lenders present extra funds to the borrower to repay instalments in order that the loans should not have to be categorised as dangerous loans.
“The exclusion of equity shares from the definition of downstream investments works only for investments in listed companies. It fails to account for private equity and venture capital investments which are in the form of compulsory convertible instruments such as CCPS and CCDs. The industry is debating as to whether they would need to convert all their hybrid secured to equity to allow REs to stay invested in their funds,” mentioned Siddarth Pai, co-chair, Indian Venture and Alternate Capital Association.
Under the revised norms, provisioning is required solely for the portion of the financial institution or finance firm’s funding within the AIF scheme that’s additional invested within the debtor firm, and never the whole funding within the AIF scheme as required earlier.Also, funding by lenders in AIFs by intermediaries corresponding to fund of funds or mutual funds should not affected.
In Dec 2023, RBI had requested banks to totally present for investments in AIFs, which went on to spend money on corporations that the banks had lent to. The guidelines had been aimed toward stopping ‘evergreening’ – an underhand observe the place lenders present extra funds to the borrower to repay instalments in order that the loans should not have to be categorised as dangerous loans.
“The exclusion of equity shares from the definition of downstream investments works only for investments in listed companies. It fails to account for private equity and venture capital investments which are in the form of compulsory convertible instruments such as CCPS and CCDs. The industry is debating as to whether they would need to convert all their hybrid secured to equity to allow REs to stay invested in their funds,” mentioned Siddarth Pai, co-chair, Indian Venture and Alternate Capital Association.
