AIFs want to know extent of exclusion for equity play now
AIFs) are seeking clarification from the central bank on the exclusion of equity shares from the definition of downstream investments. The industry wants to know whether the exclusion applies only to investments in equity shares or also includes private equity and venture capital investments in the form of compulsorily convertible instruments.
These instruments might include compulsorily convertible debentures (CCD) and compulsorily convertible preference shares (CCPS).
The industry is also seeking an explanatory glossary on whether provisioning is prorated or based on literal amounts.
On Wednesday, the Reserve Bank of India (RBI) allowed banks and NBFCs to exclude AIF investments in equity shares of their debtor companies, but included all other investments, including those in hybrid instruments.
As per the revised circular, if a bank and NBFC has a ₹100 crore investment in an AIF with a total corpus of ₹1,000 crore, and the AIF invests ₹50 crore in a debtor company, the linked bank's 10% investment in the AIF implies a provisioning requirement of 10% of ₹50 crore, which amounts to ₹5 crore. The provisioning requirement earlier would be ₹50 crore, as per the December circular.
«AIFs are seeking clarification from the RBI regarding the exclusion of equity shares from the definition of downstream investments. The industry wants to know whether the exclusion applies only to investments in equity shares or also includes private equity and venture capital investments in the form of compulsory convertible
