SEBI Reveals Over 40 Instances of AIFs Skirting Regulations, Involving Rs 30,000 Crore

20 Jan 2024 , 12:13 PM

Market regulator SEBI (Securities and Exchange Board of India) has uncovered more than 40 examples where AIFs (alternative investment funds) appear to have been formed to allow the circumvention of certain financial sector norms, to the tune of over Rs 30,000 crore.

One such way is to establish AIFs for the evergreening of troubled loans from select regulated institutions. This violates Reserve Bank of India regulations and disclosure requirements governing asset restructuring and the recognition of non-performing assets, SEBI stated in a consultation document on January 20.

On December 19, 2023, the RBI issued a directive prohibiting lenders from participating in AIFs related to borrowing enterprises. Following that, banks like HDFC Bank and RBL Bank, as well as non-bank financial institutions like Piramal Enterprises and IIFL, set aside funds for AIF investments.

SEBI noticed that certain foreign investors appear to have set up AIFs with domestic managers/sponsors to engage in areas that are barred for FDI (foreign direct investment) or exceed the authorised FDI sectoral limit.

SEBI has identified a third type of AIF usage. Certain AIFs with a single or very few investors engage in IPOs under the QIB (qualified institutional buyer) quota, influencing price discovery.

SEBI has suggested adding a general duty to the current AIF laws that would compel AIFs, managers, and key management people to ensure that their activities and investments do not aid the circumvention of restrictions enforced by any financial sector regulator.

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