Page 59 - Banking Finance January 2024
P. 59
RBI CIRCULAR
AD banks may bring the contents of this circular to the shall make 100 percent provision on such invest-
notice of their constituents. ments.
5. The directions contained in this circular have been is- 3. In addition, investment by REs in the subordinated units
sued under Section 10(4) and 11(2) of the Foreign Ex- of any AIF scheme with a priority distribution model
change Management Act, 1999 (42 of 1999) and are shall be subject to full deduction from REs capital funds.
without prejudice to permissions/approvals, if any, re- Explanation: Priority distribution model shall have the
quired under any other law. same meaning as specified in the SEBI circular SEBI/
HO/AFD-1/PoD/P/CIR/2022/157 dated November 23,
Investments in Alternative Investment 2022.
Funds (AIFs) 4. These instructions have been issued in exercise of the
powers conferred by the Sections 21 and 35A of the
December 19, 2023 Banking Regulation Act, 1949 read with Section 56 of
the Banking Regulation Act, 1949; Chapter IIIB of the
1. Regulated entities (REs) make investments in units of
AIFs as part of their regular investment operations. Reserve Bank of India Act, 1934 and Sections 30A, 32
However, certain transactions of REs involving AIFs and 33 of the National Housing Bank Act, 1987.
that raise regulatory concerns have come to our no- 5. The above instructions shall become effective immedi-
tice. These transactions entail substitution of direct loan ately.
exposure of REs to borrowers, with indirect exposure
through investments in units of AIFs. Processing of e-mandates for recurring
2. In order to address concerns relating to possible transactions
evergreening through this route, it is advised as under:
December 12, 2023
(i) REs shall not make investments in any scheme of
AIFs which has downstream investments either di- 1. A reference is invited to our circular
rectly or indirectly in a debtor company of the RE. CO.DPSS.POLC.No.S-518/02.14.003/2022-23 dated June
Explanation: The debtor company of the RE, for this 16, 2022 in terms of which relaxation in Additional
purpose, shall mean any company to which the RE Factor of Authentication (AFA) was permitted while
currently has or previously had a loan or invest- processing e-mandates / standing instructions on cards,
ment exposure anytime during the preceding 12 Prepaid Payment Instruments and Unified Payments
months. Interface, for subsequent recurring transactions with
values up to ?15,000/-, subject to conditions listed
(ii) If an AIF scheme, in which RE is already an inves-
therein.
tor, makes a downstream investment in any such
debtor company, then the RE shall liquidate its 2. In this regard, as announced in the Statement on De-
investment in the scheme within 30 days from the velopmental and Regulatory Policies dated December
date of such downstream investment by the AIF. 08, 2023, it has been decided to increase the limit from
If REs have already invested into such schemes ?15,000/- to ?1,00,000/- per transaction for the follow-
having downstream investment in their debtor ing categories: (a) subscription to mutual funds, (b)
companies as on date, the 30-day period for liqui- payment of insurance premiums, and (c) credit card bill
dation shall be counted from date of issuance of payments.
this circular. REs shall forthwith arrange to advise 3. This circular is issued under Section 10 (2) read with
the AIFs suitably in the matter. Section 18 of the Payment and Settlement Systems Act,
(iii) In case REs are not able to liquidate their invest- 2007 (Act 51 of 2007), and shall come into effect im-
ments within the above-prescribed time limit, they mediately.
52 | 2024 | JANUARY | BANKING FINANCE
