RBI Issues Revised Investment Guidelines For Alternative Investment Fund

New Delhi, Jul 30 (KNN) The Reserve Bank of India has announced revised guidelines restricting investment by regulated entities in Alternative Investment Fund schemes, effective January 1, 2026.

The new regulations cap individual regulated entity contributions at 10 percent of an AIF scheme's corpus, while limiting collective contributions from all regulated entities to 20 percent.

The central bank issued the circular on Tuesday, outlining specific provisions for regulated entities that exceed the five percent contribution threshold.

Under the new framework, any regulated entity contributing more than five percent to an AIF scheme that maintains downstream investments in the entity's debtor company must establish 100 percent provisions proportionate to its investment exposure.

The guidelines introduce stringent capital requirements for subordinated unit investments.

Regulated entities investing through subordinated units must deduct the entire investment amount from their capital funds, with deductions applied proportionately across Tier-1 and Tier-2 capital where applicable.

The regulations apply to a comprehensive range of financial institutions, including commercial banks, small finance banks, local area banks, regional rural banks, cooperative banks at various levels, all-India financial institutions, and non-banking financial companies including housing finance companies.

The revised regulations specifically target potential misuse of AIF routes for loan ever greening and stress portfolio financing.

By limiting individual contributions to 10 percent of corpus funds, the guidelines aim to reduce concentration risk while encouraging broader participation among regulated entities through collective contribution restrictions.

The enhanced provisioning requirements serve as a deterrent against inappropriate fund diversions through alternative investment channels. The strengthened framework promotes adherence to established income recognition and asset classification practices within the financial sector.

Regulated entities may implement the guidelines before the official January 1, 2026 effective date based on their internal policy decisions.

The Reserve Bank emphasised that the measures support robust risk management processes within regulated entities' investment portfolios while ensuring regulatory uniformity across the financial sector.

(KNN Bureau)