The Reserve Bank of India (RBI) has released a draft of revised directions for investment by regulated entities (REs) in Alternative Investment Funds (AIFs), seeking public comments. These follow earlier guidelines issued on December 19, 2023, and a clarification issued on March 27, 2024, aimed at curbing possible evergreening of loans.

The RBI noted that the existing rules have helped instil financial discipline among REs. In parallel, SEBI has also tightened norms around AIFs, requiring greater due diligence on both investors and investments to prevent regulatory loopholes.

Key proposals in the revised draft include:

• A cap of 10% for a single RE’s investment in any AIF scheme, and a collective cap of 15% for all REs.
• Investments up to 5% of a scheme’s corpus will not attract restrictions.
• If RE investment exceeds 5% and the AIF has downstream debt exposure to the RE’s debtor company, full provisioning will be required.
• RBI may exempt strategically important AIFs, in consultation with the government.
  

The revised directions will apply prospectively, with existing commitments governed by current norms. Public feedback is invited before final guidelines are notified.