Reserve Bank of India (Investment in AIF) Directions, 2025 – Summary
The Reserve Bank of India (RBI) has issued new directions governing investments by Regulated Entities (REs) in Alternative Investment Funds (AIFs), superseding earlier circulars issued in December 2023 and March 2024. The revised guidelines incorporate industry feedback and align with SEBI’s due diligence requirements related to AIFs.
These Directions are issued under powers granted by various statutes, including the Banking Regulation Act, the Reserve Bank of India Act, and the National Housing Bank Act. The directions shall be effective from January 1, 2026, or earlier if a RE decides so based on internal policy.
Applicability
The Directions apply to investments in AIF units by the following entities:
- Commercial Banks (including SFBs, LABs, RRBs)
- Co-operative Banks (Urban, State, Central)
- All-India Financial Institutions
- Non-Banking Financial Companies (NBFCs and HFCs)
Key Definitions
A debtor company refers to any company where the RE has had loan or investment exposure (excluding equity) within the past 12 months. Equity instruments include equity shares, compulsorily convertible preference shares (CCPS), and compulsorily convertible debentures (CCDs).
General Requirement
REs must ensure their internal investment policies explicitly govern AIF investments and comply with relevant laws and regulations.
Investment Limits and Provisioning
- An individual RE cannot invest more than 10% of an AIF’s corpus.
- The total contribution by all REs in a single AIF must not exceed 20%.
- If an RE invests over 5% in an AIF that subsequently invests (excluding equity) in the RE’s debtor company, the RE must make 100% provisioning of the proportionate amount.
- For subordinated units, the entire amount shall be deducted from the RE’s capital funds, split between Tier-1 and Tier-2 capital.
Exemptions
Investments made under prior RBI approval (via 2016 Master Directions) are exempt from the 10% and 20% investment limits. RBI may also, in consultation with the Government of India, exempt certain AIFs.
Repeal and Transitional Provisions
The 2023 and 2024 circulars are repealed from the effective date. However, existing investments and commitments may continue under either the old or new regime, depending on the RE’s choice, provided the commitment was made before the effective date.
