The Reserve Bank of India (RBI) has been requested to impose exposure limitations on Non-Banking Financial Companies (NBFCs) participating in Alternative Investment Funds (AIFs) by the Indian Venture and Alternate Capital Association (IVCA). This action is being taken in response to worries about the impartiality of the decision-making process surrounding investments in some AIFs, especially those that have a sizable portion of their corpus derived from NBFCs.
Such AIFs frequently participate in a significant volume of related-party transactions, reinvesting money back into their own group firms, according to people familiar with the situation. NBFCs are not subject to the 10% ceiling on total corpus that banks and insurance companies now face when investing in AIFs.
While the RBI is yet to respond, discussions between IVCA and the central bank have been ongoing, involving other stakeholders in the process. This proposal aligns with the RBI’s recent circular for Regulated Entities (RE) investing in AIFs, which emphasized the need to mitigate risks associated with such investments.
