Strategic AIFs may get excluded from RBI’s evergreening rules: Report

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alternative investment funds (AIFs) from the restrictions imposed by the evergreening circular issued in December, reported Business Line. This may include NIIF Funds, SIDBI Fund of Funds, SBI Cap Venture’s Self-Reliant India Fund and SWAMIH Investment Fund (SIF) and any new funds that the government may launch or considered strategically important, said a person in the know. Equity funds are expected to see some leeway but not much of a relaxation may be granted to debt funds.

A cap on the exposure of an NBFC to an AIF may also be introduced. “The inclusion of equity funds was surprising and there is a need for a carve-out with adequate safeguards. Reliance may be placed on the SEBI ‘Ease of Doing Business’ circular, which provides for an exclusion of affected entities from investing in the AIF," said an industry official.

An email sent to the RBI did not get a response. Under the prudential norms, banks cannot invest more than 10 per cent of the AIF’s corpus without the RBI’s approval. So, there is an inherent diversification.

“With this 10 per cent, the scope of evergreening is low. So, banks should be exempted from the evergreening circular, irrespective of whether the funds are debt or equity. Also, these restrictions should not apply to bank subsidiaries, which may themselves be regulated by other regulators such as SEBI and IRDAI," said Divaspati Singh, Partner, Khaitan & Co. Singh believes that only NBFCs need to be brought under the evergreening circular.