The Reserve Bank of India (RBI) has issued the Investment in Alternative Investment Funds (AIF) Directions, 2025, which were released today. These Directions will come into effect on January 1, 2026, or from an earlier date as determined by a Regulated Entity (RE) in accordance with its internal policy.
The Directions apply to investments made by REs in units of AIF schemes. The term Regulated Entities (REs) includes:
- Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks),
- Primary (Urban) Co-operative Banks, State Co-operative Banks, and Central Co-operative Banks,
- All-India Financial Institutions, and
- Non-Banking Financial Companies (NBFCs), including Housing Finance Companies.
Investment Policy and Compliance
Each RE must incorporate appropriate provisions within its investment policy to govern investments in AIF schemes. These provisions must comply with applicable laws and regulatory requirements.
Investment Limits
The RBI has specified investment limits as follows:
- Individual RE Limit: An individual RE shall not contribute more than 10% of the corpus of any AIF scheme.
- Collective RE Limit: The aggregate contribution by all REs to a single AIF scheme shall not exceed 20% of the corpus of that scheme.
Provisioning Requirements
Where an RE contributes more than 5% of the corpus of an AIF scheme that, in turn, has downstream investments (excluding equity instruments) in a debtor company of the RE, the following shall apply:
- The RE must make a 100% provision equivalent to its proportionate investment in the debtor company through the AIF, subject to a maximum of the RE’s direct loan and/or investment exposure to the debtor company.
Capital Deduction for Subordinated Units
If an RE’s investment in an AIF scheme is in the form of subordinated units, the entire investment must be deducted from the RE’s capital funds, apportioned between Tier-1 and Tier-2 capital, as applicable.
