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RBI directs banks to refrain from investing in any scheme offered by Alternative Investment Funds

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The Reserve Bank of India has directed all Commercial Banks, Co-operative Banks, Non-Banking Financial Companies including Housing Finance Companies and Financial Institutions to refrain from investing in any scheme offered by Alternative Investment Funds (AIFs), which has downstream investments either directly or indirectly in the bank’s debtor company.

In a notification issued from Mumbai, RBI has stated that the debtor company means any company that has taken a loan from the bank anytime during the preceding twelve months. RBI has further directed banks to liquidate their investment from such AIFs within thirty days.

The circular adds that in case the bank is unable to liquidate their investment within the specified time frame, then it must make 100 percent provision on such investments. RBI has said that the instructions have come into effect immediately.

RBI has said that it has recently noticed that some of such transactions may develop regulatory concerns, prompting the issuance of said directions. It may be noted that AIFs means venture capital funds, angel funds, infrastructure funds, private equity funds and hedge funds, among others. 

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