RBI Says Stop! No More Masking Bad Loans via AIFs — Full Provisions If You Do
📅 May 19, 2025 | By Prashant Marathe | EduInvesting.in
🔍 At a Glance:
The Reserve Bank of India has just released revised draft Directions for how banks and NBFCs (called “Regulated Entities” or REs) can invest in Alternative Investment Funds (AIFs). After December’s crackdown and March’s clarifications, this new draft (open for public comments till June 8, 2025) aims to strike a balance between financial discipline and flexibility, while keeping shady evergreening schemes out.
🧠 What’s This All About?
Let’s break it down in EduInvesting style:
Think of AIFs like that risky but exciting group project — it can score big or tank your GPA (or in this case, your capital adequacy ratio). RBI wants to ensure regulated entities don’t just throw public money into these funds without supervision.
In December 2023, RBI first said “No shady stuff!” — mainly to stop banks from using AIFs to evergreen loans (a trick where old, possibly defaulting borrowers are indirectly funded via third parties — like using your friend’s credit card to pay your EMI).
Now with SEBI also laying down stricter due diligence norms on AIFs, RBI is saying, “Let’s streamline this whole thing.”
