RBI Revised Norms on Bank and NBFC Investment in AIFs
Why in the news
On 30 July 2025 RBI reworked how banks, NBFCs and other regulated entities (REs) may invest in Alternative Investment Funds, relaxing some limits while guarding against disguised loan evergreening.
Key facts
| Rule | Detail |
|---|---|
| Combined cap | All REs together: 20% of an AIF scheme’s corpus |
| Individual cap | One RE: 10% of corpus |
| Equity exclusion | AIF equity holdings exempt from provisioning; CCDs and CCPS treated as equity |
| Provisioning | Above 5% stake with downstream non-equity exposure to the RE’s debtor: 100% provision, capped at direct exposure to that firm |
| Subordinated units | Fully deducted from capital, split across Tier-1 and Tier-2 |
| Start | 1 January 2026, or earlier by choice |
Objectives
- Stop regulatory arbitrage through indirect lending via AIFs.
- Reduce credit and concentration risk from circular exposure to debtors.
- Match provisioning with actual risk.
Background
- December 2023: RBI barred REs from AIFs exposed to their own borrowers, after SEBI flagged evergreening.
- May 2024: partial easing as REs struggled with capital calls.
- Latest norms leave out equity-linked exposures and clarify definitions.
Exam angle
- Caps: 10% individual, 20% combined.
- Terms: evergreening, CCD, CCPS.