AIFs seek higher cap on inflows from banks, NBFCs
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Mumbai: Alternate investment funds (AIFs) have urged the banking regulator to ease the investment caps proposed for regulated entities (REs), arguing that the low thresholds suggested in draft proposals could significantly constrain capital inflows and disrupt long-tenure funds, industry sources told ET.In a representation via the Indian Venture and Alternate Capital Association (IVCA), the industry has urged the Reserve Bank of India (RBI) to allow REs to invest up to 25% in a single AIF scheme, up from the 10% individual and 15% aggregate caps proposed in a May 19 draft circular, sources close to the development said. The draft rules are part of the RBI's tightening oversight of bank and NBFC exposure to stressed companies through AIF structures. Under the draft, no single RE can invest more than 10% of an AIF scheme's corpus, and total exposure from all REs combined must remain within 15%, to prevent concentration risk and influence over investment decisions. The RBI has proposed expanding the exemption for downstream exposures by excluding not just equity shares but also compulsorily convertible preference shares (CCPS) and compulsorily convertible debentures (CCDs).While industry experts say that allowing up to 5% exposure in Category I and II AIFs without triggering provisioning norms or restrictions on portfolio composition will help capital flow into AIFs, they have raised concerns on the overall cap. They have suggested that the investment cap for a single RE be increased to 25% up from the proposed 10% which could allow these entities to participate in long-tenure or capital-intensive funds, particularly infrastructure or stressed asset funds.
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