RBI instructs banks not to participate in any programme that Alternative Investment Funds (AIF) offers.


Mumbai: All commercial banks, cooperative banks, non-banking financial companies (including housing finance companies), and financial institutions have received instructions from the Reserve Bank of India to abstain from investing in any scheme offered by alternative investment funds (AIFs) that contain downstream investments in the bank’s debtor company, either directly or indirectly. The RBI defined the debtor company as any business that has taken out a loan from the bank at any point in the previous 12 months, according to a notice released from Mumbai. The RBI has additionally mandated that banks sell their holdings in these AIFs within a thirty-day period.

The circular further states that the bank must make a 100% provision on these investments if it is unable to dispose them within the allotted time. According to RBI, the directives are now effective right away. The RBI has stated that the issuance of these instructions was prompted by its recent discovery that certain of these transactions may give rise to regulatory problems. AIFs, it should be emphasised, include hedge funds, private equity funds, infrastructure funds, venture capital funds, and angel funds, among others.