Notification

  • Not Able to Find What You’re Looking For? Speak to us directly! Our experts are here to guide you through any queries or challenges.

    Speak to Us

RBI’s Draft Guidelines on AIF Exposure by Regulated Entities – Key Highlights and Implications

Get in touch with us

    Your information is confidential and secure

    The Reserve Bank of India (RBI) has released draft directions to regulate investments made by Regulated Entities (REs)—such as banks, NBFCs, and other financial institutions—into Alternative Investment Funds (AIFs).

    A key proposal is the introduction of exposure caps aimed at limiting interconnected risks within the financial system:

    • A single regulated entity will be allowed to invest up to 10% of the corpus of an AIF scheme.
    • Aggregate exposure by all regulated entities to the same AIF scheme is proposed to be capped at 15%.

    These changes are aimed at curbing practices like evergreening of loans and circular financing arrangements, where lenders indirectly fund borrower companies via AIF routes.

    At the same time, this move could significantly reshape the domestic fundraising landscape—especially for AIFs that rely on Indian institutional capital as anchor investors. The proposal introduces a more cautious, risk-sensitive framework that fund managers will need to consider while structuring their capital sources.

    Key Exemptions from Provisioning Requirements:

    The draft outlines certain carve-outs where REs would not be subject to provisioning norms:

    • If the RE holds less than 5% of the AIF scheme’s corpus;
    • If the AIF’s investment in a borrower is only in equity instruments (such as equity shares, CCPS, or CCDs);
    • If the AIF is a strategic Fund of Funds (FoF) backed by the Government.

    As SEBI tightens its due diligence norms for AIFs and the RBI refines exposure limits for REs, alignment between fundraising and deployment strategies is becoming increasingly important. These regulatory shifts may also influence the perception of risk and confidence for global Limited Partners (LPs) looking at India-focused funds, especially where domestic institutions are key participants.

    Curious how these guidelines may affect your AIF strategy or structure?
    Let’s talk – write to us at dhairya.c@treelife.in

    About the Author
    Dhairya Chaniyara
    Dhairya Chaniyara
    Senior Associate | Tax & Regulatory | dhairya.c@treelife.in

    Focuses on direct tax and regulatory services with a specialization in GIFT IFSC. Brings experience from various industries, including manufacturing, FMCG, IT-ITES, and healthcare, to deliver impactful tax solutions.

    We Are Problem Solvers. And Take Accountability.

    Related Posts

    Online Gaming Act 2025: Can this trigger Material Adverse Effect(MAE) Clause?
    Online Gaming Act 2025: Can this trigger Material Adverse Effect(MAE) Clause?

    This article analyzes Material Adverse Effect (“MAE”) clauses in the transaction documents with specific focus on regulatory changes. A Material...

    Learn MoreLearn More
    Setting up a Business in India for Foreign Company [2025]
    Setting up a Business in India for Foreign Company [2025]

    Setting up a foreign business in India involves a systematic process with legal, financial, and regulatory requirements. India offers multiple...

    Learn MoreLearn More
    Taxation & Regulatory Framework for Derivatives and Equity Investments in India
    Taxation & Regulatory Framework for Derivatives and Equity Investments in India

    This research note provides a comprehensive analysis of the taxation and regulatory framework governing investments in derivatives (futures and options)...

    Learn MoreLearn More

    For Customer Support

    Mumbai | Delhi |
    Bangalore | GIFT City

    Speak to Us!

    We respond within 60 minutes.

      Your information is confidential and secure

      For Customer Support

      Mumbai | Delhi |
      Bangalore | GIFT City

      Fill out the form to unlock the full report!

      Image