The RBI seeks to address regulatory concerns and enhance transparency in lending practices to prevent the masking of bad loans
FinTech BizNews Service
Mumbai, December 20, 2023: The Reserve Bank of India (RBI) has prohibited lenders from investing in alternative investment funds (AIFs) that have invested in their borrowers, aiming to curb evergreening of loans. The move follows concerns raised by the Securities and Exchange Board of India (Sebi) about non-bank financiers using AIFs for evergreening.
Punit Shah, Partner, Dhruva Advisors, has shared his studied comments on the recent circular from RBI with respect to Alternative Investment Funds: “The circular applies to all financial institutions and mandates liquidation of AIF investments within 30 days if downstream investments are made in borrowers. The RBI seeks to address regulatory concerns and enhance transparency in lending practices to prevent the masking of bad loans. The intention of the move by RBI is to prevent evergreening of loans by Banks, NBFCs etc. However, the circular prohibits any exposure by these entities to specified AIFs, which can be extremely damaging and can have unintended negative impact on the AIF industry, especially sponsored by financial services players.”
