The Reserve Financial institution of India has directed banks and non-bank lenders to supply for the extent of funding within the various funding fund, which is additional invested within the debtor firm.
The provisions shouldn’t be made on the complete funding of the lender within the AIF scheme, the central financial institution clarified in a round launched on Wednesday.
This comes after the RBI, in December, restricted banks and NBFCs from investing in AIFs, which have downstream investments in debtor corporations. The transfer was geared toward controlling evergreening of loans by way of the AIF funding route.
If banks or NBFCs had such investments in AIFs, they got 30 days to liquidate their holdings or make 100% provisions in opposition to them, the RBI round from December said.
The central financial institution additionally mentioned that downstream investments by AIFs “shall exclude investments in fairness shares of the debtor firm of the lender.” Nonetheless, the instructions apply to all different investments, together with investments in hybrid devices.
Debtor corporations embrace debtors who’ve availed loans or investments from banks or NBFCs within the final 12 months.
After the round was issued in December, Piramal Enterprises Ltd. and IIFL Finance Ltd. knowledgeable exchanges of their publicity to AIFs and mentioned that they’d initiated the method of constructing provisions.
IIFL Finance disclosed a complete funding of Rs 21.37 crore within the IIFL Fintech Fund, together with an impressive debt publicity of Rs 3.28 crore associated to the fund’s downstream investments. The overall worth of different AIF investments stood at Rs 909.81 crore, excluding any downstream publicity within the previous 12 months.
IIFL Residence Finance had an funding of Rs 161.07 crore by way of the “precedence distribution mannequin,” the corporate mentioned in an change submitting. If the housing finance arm of IIFL Finance fails to liquidate this funding, the corporate must present totally for this publicity.
Piramal Enterprises had a complete publicity of Rs 1,737 crore to AIFs. The corporate emphasised its intention to supply for its whole AIF publicity, past what’s said within the RBI’s rules.
The central financial institution clarified that provisions for downstream publicity to debtor corporations, the place AIF is invested, have to come back from tier-1 and tier-2 capital equally.
Notably, AIF investments by lenders by way of intermediaries similar to fund of funds or mutual funds are excluded from the aforementioned restrictions, the RBI mentioned.
Whereas trade individuals have lauded the clarification, there are some sticking factors as effectively.
“The latest RBI round does present some operational and regulatory readability but additionally raises new questions,” mentioned Siddarth Pai, co-chair of Regulatory Affairs Committee at Indian Enterprise and Alternate Capital Affiliation.