Key Highlights
- The aggregate exposure limit for regulated entities in any AIF scheme has been elevated to 20% of the scheme’s corpus.
- Each regulated entity is capped at a maximum contribution of 10% of the scheme’s corpus.
- Equity holdings arising from downstream investments are exempted from the stringent provisioning regime.
- When a regulated entity’s contribution exceeds 5% of an AIF that holds debt exposures to its own borrower, a 100% provision is mandated, capped by the entity’s direct loan or investment exposure.
- Subordinated units issued by an AIF will be deducted entirely from both Tier‑1 and Tier‑2 capital of the investing regulated entity.
- The new framework becomes effective on 1 January 2026, though individual entities may opt‑in earlier.
Detailed Insights
Alternative Investment Funds (AIFs) are privately pooled vehicles that channel capital into a range of non‑public assets such as real estate, private equity, venture capital, and hedge funds. In the wake of regulatory concerns that AIFs were being misused to evergreen loans, the Reserve Bank of India (RBI) in December 2023 barred banks and non‑banking financial companies from investing in AIFs that held exposure to their existing or recent borrowers. This restriction, however, created liquidity bottlenecks for many AIF managers. After a period of stakeholder consultations, RBI has now softened the exposure constraints, raising the overall cap from 15% to 20% while retaining the single‑entity limit at 10%. Equity investments in downstream deals are no longer subject to the tighter provisioning rules, a move that will grant equity‑focused AIFs greater operational flexibility. The new rules also introduce a 100% provisioning requirement for regulated entities that allocate more than 5% of the AIF’s corpus to debt exposures of their own borrower, ensuring that indirect exposures are reflected appropriately in balance sheets.
Statistics from March 2025 illustrate the scale of AIF activity: commitments reached ₹13.49 trillion, while investments totaled ₹5.38 trillion, of which equity and equity‑linked securities accounted for ₹3.5 trillion. Domestic investors contributed ₹4.08 trillion of the raised amount. Real estate remains the dominant sector, followed by IT, financial services, and other NBFCs.
The alignment of the new RBI guidelines with SEBI’s due‑diligence norms aims to curb misuse of AIF structures for loan evergreening, standardise investment oversight, and provide clarity to investors and regulators alike.