Banks seeking to exit Alternative Investment Fund (AIF) units may face obstacles.

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Banks seeking to exit Alternative Investment Fund (AIF) units may face obstacles


Regulatory Challenge for Banks Exiting AIF Units

Regulated entities, including banks and NBFCs, looking to exit Alternative Investment Fund (AIF) units face hurdles, as per RBI guidelines.

30-Day Deadline and Limited Market Options

Banks and NBFCs must assess and liquidate their AIF investments within 30 days, but experts warn of challenges due to the absence of an active secondary market for such units in India.

Selling Unlisted AIF Units Poses Difficulty

Experts highlight the complexity of selling unlisted AIF units, emphasizing the lack of a readily available market, making the process challenging for banks.

Concerns Over Evergreening of Loan Exposures

The RBI circular aims to address concerns about the disguised evergreening of loan exposures through AIF investments by financial institutions.

Impact on Diversification and Risk Mitigation

The guidelines may discourage regulated entities from genuine investments in AIFs for diversification purposes, impacting risk mitigation strategies.

Exit or Provisioning Requirement

If an AIF invests in a debtor company of a bank or NBFC, the entity must either exit the AIF investment or make a 100% provisioning on such investments.

Restrictions on Future Investments

Regulated entities may require commitments from AIFs to ensure that funds do not prospectively invest in the debtor companies of these entities.

Potential Collateral Damage and Participation Barriers

Experts suggest that unless further calibrated, the measures may act as significant barriers for financial institutions participating in AIFs, impacting domestic capital formation.

Call for Thresholds and Targeted Measures

Recommendations include introducing thresholds for application, considering factors such as the percentage of RE's investment in the AIF and the due date of the RE's loan to the debtor company.

Exceptions and Scheme-Specific Considerations

The guidelines exempt situations where another scheme of the same AIF or any scheme with the same investment manager invests in a debtor company of the regulated entity.

Disclaimer: This article is pure understanding of Gyaanleikh team, and we don't allow you to rely on the same.

AIF exit challenges
RBI guidelines on AIF investments
30-day liquidation deadline
Limited secondary market options
Selling unlisted AIF units
Evergreening concerns







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