On 29-7-2025, the Reserve Bank of India (‘RBI’) notified the Reserve Bank of India (Investment in AIF) Directions, 2025 to regulate and streamline the how banks and other financial institutions invest in Alternative Investment Funds (‘AIFs’). The provisions will come into effect from 1-1-2026 unless the Regulated Entity (‘RE’) decided for any other date as per its internal policy.
Applicable to investments by the following RE in units of Alternative Investment Funds Schemes:
- Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks);
- Primary (Urban) Co-operative Banks/ State Co-operative Banks/ Central Co-operative Banks;
- All-India Financial Institutions;
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Non-Banking Financial Companies (including Housing Finance Companies).
Key Points:
- The investment policy of the RE should have suitable provisions governing its investments in an Alternative Investment Funds Scheme.
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Limits on Investments and Provisioning:
- RE cannot individually contribute more than 10% of the corpus of an Alternative Investment Funds Scheme;
- Collective contribution by all the REs cannot be rmore than 20% of the corpus of that scheme;
- In case any RE contributes more than 5% of the corpus, which has downstream investment (excluding equity instruments) in a debtor company of the RE, then:
- the RE will be required to make 100% provision for its proportionate investment in the debtor company through the Alternative Investment Funds Scheme;
- This provision is capped at maximum of the RE’s direct loan and/ or investment exposure to the debtor company.
- In case REs contribution is in the form of subordinated units, then the entire investment will be deducted from its capital funds- proportionally from both Tier-1 and Tier- 2 capital.
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Exemptions:
- Outstanding investments or commitments of a RE, made with prior approval from the Reserve Bank under the provisions of Master Direction-Reserve Bank of India (Financial Services provided by Banks) Directions, 2016.
- RBI can exempt certain Alternative Investment Funds from the scope of the existing circulars and the revised Directions.
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Repealed Provisions:
- RBI Notification – Investments in Alternative Investment Funds (AIFs) dated 19-12-2023.
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RBI Notification- Investments in Alternative Investment Funds (AIFs) dated 27-3-2024.
In case, RE has fully honored its commitment to an Alternative Investment Funds Scheme before 29-87-2025 then the investment will continue to be governed by the existing circulars from 2023 and 2024.
In case RE has made investments under existing commitment as of 29-7-2025 or under an new commitment entered before or after 1-1-2026, the RE has the option to follow either the existing circulars or these Directions.
