RBI Tightens Norms For Banks And NBFCs Investing In AIFs To Address Concerns Relating To Evergreening

• Published date: 04 April 2024
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Fund Management/ REITs, Corporate and Company Law
• Law Firm: Argus Partners
• Author: Mr Adity Chaudhury and Mayuri Kalelkar

The Reserve Bank of India on December 19, 2023, has issued a notification tightening norms for regulated entities (banks, non-banking financial companies, housing finance companies etc.) ("Regulated Entities") investing in alternative investment funds ("AIF"). The norms have been introduced to address concerns of evergreening by Regulated Entities as there have been certain transactions which entailed substitution of direct loan exposure of Regulated Entities to borrowers, with indirect exposure through investments in units of AIFs.

The notification stipulates the following :

1. A Regulated Entity cannot make an investment in any scheme of AIF which has downstream investments either directly or indirectly in a debtor company of the Regulated Entity. The debtor company of the Regulated Entity, for this purpose, shall mean any company to which the Regulated Entity currently has or previously had a loan or investment exposure anytime during the preceding 12 (twelve) months.
2. If an AIF scheme, in which a Regulated Entity is already an investor, makes a downstream investment in any such debtor company then the Regulated Entity has to liquidate its investment in the scheme within 30 (thirty) days from the date of such downstream investment by the AIF. If Regulated Entities have already invested into such schemes having downstream investment in their debtor...