Master Class on Business and Financial analysis

Reserve Bank of India AIF Directions 2025

Explore the Reserve Bank of India's 2025 directions regarding investments in Alternative Investment Funds (AIF). Understand the implications of these banking regulations and how they affect investors and financial institutions.

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7/31/20251 min read

The Reserve Bank had issued the directions, Reserve Bank of India (Investment in AIF) Directions, 2025, vide RBI/DOR/2025-26/138 DOR.STR.REC.43/21.04.048/2025-26. According to the directions, an RE shall have suitable provisions governing its investments in an AIF Scheme, compliant with extant law and regulations.

Who can make investment in the AIFs: The following REs can invest in units of AIF Schemes

a. Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks)

b. Primary (Urban) Co-operative Banks/ State Co-operative Banks/ Central Co-operative Banks

c. All-India Financial Institutions

d. Non-Banking Financial Companies (including Housing Finance Companies)

Limits on Investments and Provisioning:

a. No RE shall individually contribute more than 10 per cent of the corpus of an AIF Scheme.

b. Collective contribution by all REs in any AIF Scheme shall not be more than 20 per cent of the corpus of that scheme.

c. If a RE contributes more than five per cent of the corpus of an AIF Scheme, which also has downstream investment (excluding equity instruments) in a debtor company of the RE, then the RE shall be required to make 100 per cent provision to the extent of its proportionate investment in the debtor company through the AIF Scheme, subject to a maximum of the direct loan and/ or investment exposure of the RE to the debtor company. ”Debtor Company” of a RE shall imply any company to which the RE currently has or previously had a loan or investment exposure (excluding equity instruments) anytime during the preceding twelve months. And “equity instrument” shall refer to equity shares, compulsorily convertible preference shares (CCPS) and compulsorily convertible debentures (CCD). However, if a RE’s contribution is in the form of subordinated units, then it shall deduct the entire investment from its capital funds – proportionately from both Tier-1 and Tier-2 capital (wherever applicable).

“effective date” - These Directions shall come into force from January 1, 2026, or from any earlier date as decided by a RE as per its internal policy.

The author CA Rohit Tendulkar can be reached at https://dhandasikho.online