'RBI's AIF rules impractical, to shift industry dynamics'

Investors fear ₹40,000 crore impact as RBI restricts banks from AIFs with debtor fund links

- Gopika Gopakumar & Neil Borate

The Reserve Bank of India’s new rule barring banks and non-banks from investing in alternative investment funds (AIFs) having downstream investments in debtor funds is impractical, risking a freeze on the AIF industry, said investors.

According to RBI, debtor firms are those which have either borrowed or received investments from the same banks or NBFCs in the past 12 months.

Investors believe ₹20,000-40,000 crore of assets under management will be affected if the banks and non-banks have to unwind their investments in 30 days or make 100% provisioning. They argued that unwinding these investments is not feasible and would topple the entire AIF structure, as limited liability partnerships (LLPs) typically invest following commitments from sponsors that are usually regulated entities like banks and non-banks.