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

Published: 21 May 2025  |  Last updated: 22 Jul 2025
Author: Treelife
Practice area: News
Source: https://treelife.in/news/rbis-draft-guidelines-on-aif-exposure-by-regulated-entities-key-highlights-and-implications/

---

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

### Related posts:

- [The Union Budget 2023: Macro Economic Highlights](https://treelife.in/news/the-union-budget-2023-macro-economic-highlights/)

- [2025: A year to watch for International Tax Developments](https://treelife.in/news/2025-a-year-to-watch-for-international-tax-developments/)

- [SEBI’s New Consultation Paper: A Step Towards Flexible Co-Investment Models for AIFs](https://treelife.in/news/sebis-new-consultation-paper-a-step-towards-flexible-co-investment-models-for-aifs/)

- [IFSCA Updates Framework for Global/Regional Corporate Treasury Centres (GRCTCs), Enhancing Regulations](https://treelife.in/news/ifsca-updates-framework-for-global-regional-corporate-treasury-centres-grctcs-enhancing-regulations/)

---

This is informational content from Treelife. For advice specific to your situation, contact support@treelife.in