RBI has noticed that Regulated entities (REs) make investments in units of AIFs as part of their regular investment operations. However, certain transactions of REs involving AIFs that raise regulatory concerns have come to our notice. These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs.In order to address concerns relating to possible evergreening through this route, it is advised as under:
REs shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE. investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from RE’s capital funds.
