Executive Summary:
The Reserve Bank of India (RBI) issued the "Investment in AIF Directions, 2025" to update regulatory guidelines for investments in Alternative Investment Funds (AIFs) by regulated entities (REs). These directions, effective from January 1, 2026, or earlier based on an RE's internal policy, follow a review of existing circulars and consideration of industry feedback and SEBI regulations. The directions are issued under the authority of several acts, including the Banking Regulation Act of 1949 and the Reserve Bank of India Act, 1934.
Key Points / Main Content:
* **Applicability:**
* These directions apply to Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks), Primary Urban Cooperative Banks, State Cooperative Banks, Central Cooperative Banks, All-India Financial Institutions, and Non-Banking Financial Companies (including Housing Finance Companies) investing in AIF Schemes.
* **Definitions:**
* "Debtor company" refers to any company with current or previous loan/investment exposure (excluding equity instruments) from the RE within the preceding twelve months.
* "Equity instrument" includes equity shares, compulsorily convertible preference shares (CCPS), and compulsorily convertible debentures (CCD).
* **General Requirements:**
* REs must have an investment policy with provisions governing investments in AIF Schemes, compliant with existing laws and regulations.
* **Limits on Investments and Provisioning:**
* No RE can contribute more than 10% of an AIF Scheme's corpus individually.
* Collective RE contribution to any AIF Scheme cannot exceed 20% of the scheme's corpus.
* If a RE contributes over 5% to an AIF Scheme with downstream investments (excluding equity instruments) in a debtor company of the RE, a 100% provision is required to the extent of the RE's proportionate investment in the debtor company via the AIF Scheme, capped by the RE's direct exposure to the debtor company.
* If a RE's contribution is in subordinated units, the entire investment must be deducted from its capital funds (Tier 1 and Tier 2, as applicable).
* **Exemptions:**
* Investments/commitments made with prior RBI approval under the Master Direction Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 are excluded from the investment limits.
* The RBI may exempt certain AIFs from these directions (except for the General Requirement) in consultation with the Government of India.
* **Repeal Provisions:**
* Circulars DOR.STR.REC.5821.04.048/2023-24 dated December 19, 2023, and DOR.STR.REC.8521.04.048/2023-24 dated March 27, 2024, are repealed from the effective date.
* Outstanding investments where commitments are fully honoured will be governed by existing circulars.
* Investments made per existing commitments can follow either existing circulars or the new directions in their entirety.
Impact Analysis:
* **Commercial Banks, Cooperative Banks, Financial Institutions, and NBFCs (REs):**
* Impact: REs are subject to new investment limits, provisioning requirements, and general policy requirements when investing in AIFs.
* Action Required: REs must update their investment policies to comply with the new directions, assess their existing and planned AIF investments for compliance, and make necessary provisions or capital deductions.
* **Alternative Investment Funds (AIFs):**
* Impact: AIFs may experience changes in the composition of their investor base and the size of investments from REs.
* Action Required: AIFs should be aware of the new investment limits and provisioning requirements for REs and adjust their fundraising strategies accordingly.
Key Entities Referenced
Reserve Bank of India Investment in AIF Directions, 2025: The title of the policy document being analyzed, pertaining to investments in Alternative Investment Funds (AIFs) by Regulated Entities (REs).
Alternative Investment Funds (AIFs): A type of investment fund, as defined in the context of the policy document.
Securities and Exchange Board of India (SEBI): The regulatory body for securities and commodity market in India, which has issued regulations related to AIFs that were considered in the review of these guidelines.
Banking Regulation Act, 1949: An act of the Parliament of India that regulates the Indian banking sector.
Reserve Bank of India Act, 1934: An act that established the Reserve Bank of India.
National Housing Bank Act, 1987: An act that established the National Housing Bank.
Commercial Banks: A type of Regulated Entity (RE) to which these directions apply, specifically including Small Finance Banks, Local Area Banks and Regional Rural Banks.
Master Direction Reserve Bank of India Financial Services provided by Banks Directions, 2016: A prior direction by the Reserve Bank of India, which contains provisions that may exempt certain investments from the scope of the new directions under specific conditions.
,
बेटी बचाओ
भारतीय ररजर्व बैंक बेटी पढ़ाओ
RESERVE BANK OF INDIA
___________________________________www.rbi.org.in___________________________________
RBI/2025-26/138
DOR.STR.REC.43/21.04.048/2025-26
July 29, 2025
Reserve Bank of India (Investment in AIF) Directions, 2025
The Reserve Bank had issued the circulars DOR.STR.REC.58/21.04.048/2023-24
dated December 19, 2023 and DOR.STR.REC.85/21.04.048/2023-24 dated March
27, 2024 (“existing circulars”), prescribing the regulatory guidelines in respect of
investment by the regulated entities of the Reserve Bank (REs) in Alternative
Investment Funds (AIFs). The above guidelines have been reviewed, inter alia, taking
into account industry feedback as well as the regulations issued by the Securities and
Exchange Board of India (SEBI) relating to specific due diligence of investors and
investments of AIFs.
Accordingly, in exercise of powers conferred under Sections 21 and 35A of the
Banking Regulation Act, 1949 read with Section 56 of the Banking Regulation Act,
1949; Chapter IIIB of the Reserve Bank of India Act, 1934 and Sections 30A, 32 and
33 of the National Housing Bank Act, 1987, the Reserve Bank of India being satisfied
that it is necessary and expedient in the public interest to do so, hereby issues these
Directions hereinafter specified.
2. Short title and commencement
a) These Directions shall be called the Reserve Bank of India (Investment in AIF)
Directions, 2025.
b) 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 (“effective date”).
3. Applicability
These Directions shall be applicable to investments by the following REs in units of
AIF Schemes:
a) Commercial Banks (including Small Finance Banks, Local Area Banks and
Regional Rural Banks)Reserve Bank of India (Investment in AIF) Directions, 2025
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)
4. Definitions
For the purpose of these Directions, following definitions apply:
a) ‘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.
b) ‘Equity instrument’ shall refer to equity shares, compulsorily convertible
preference shares (CCPS) and compulsorily convertible debentures (CCD).
5. General Requirement
A RE’s investment policy shall have suitable provisions governing its investments in
an AIF Scheme, compliant with extant law and regulations.
6. 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.
d) Notwithstanding the provisions of paragraph 6(c), 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).
2Reserve Bank of India (Investment in AIF) Directions, 2025
7. Exemptions
a) 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, are
excluded from the scope of paragraphs 6(a) and 6(b) of these Directions.
b) The Reserve Bank may, in consultation with the Government of India, by a
notification, exempt certain AIFs from the scope of the existing circulars and the
revised Directions (except for paragraph 5 – “General Requirement” of these
Directions).
8. Repeal Provisions
a) Following circulars shall stand repealed from the effective date of these
Directions. Any new commitment by a RE for contribution to a AIF scheme,
made after the effective date, shall be governed in terms of the revised
Directions.
Circular No. Date Subject
DOR.STR.REC.58/21.04.048 December Investments in Alternative
/ 2023-24 19, 2023 Investment Funds (AIFs)
DOR.STR.REC.85/21.04.048 March 27, Investments in Alternative
/ 2023-24 2024 Investment Funds (AIFs)
b) Notwithstanding the above repeal provisions:
i. Outstanding investment by a RE, on the date of issuance of these
Directions, in a AIF Scheme in which it has fully honoured its
commitment, shall be governed by the provisions of the existing
circulars.
ii. In respect of any investment made by a RE in a AIF Scheme in terms of
an existing commitment as on the date of these Directions, or in terms
of a new commitment entered into before the effective date, the RE shall
follow, in toto, the provisions of either the existing circulars or the revised
Directions.
****
3