The Reserve Bank of India (“RBI”), in exercise of powers conferred under Section 21 and Section 35A read with Section 56 of the Banking Regulation Act, 1949, Chapter IIIB of the Reserve Bank of India Act, 1934 and Section 30A, Section 32 and Section 33 of the National Housing Bank Act, 1987, vide Circular No. RBI/DOR/2025-26/138,[1] dated July 29, 2025, has issued the Reserve Bank of India (Investment in AIF) Directions, 2025 (“Directions”), replacing earlier guidelines contained in circulars dated 19 December 2023 and 27 March 2024, relating to investments by RBI-Regulated Entities (“REs”) in Alternative Investment Funds (“AIFs”). The Directions have been framed after considering industry feedback and recent developments in SEBI regulations. The Directions will come into effect from January 01, 2026, or an earlier date as determined by the RE under its internal policy.
Key Highlights of the Directions:
I. Applicability: These Directions are applicable to investments by the following RBI-REs in units of AIF schemes:
- Commercial Banks (including SFBs, LABs, and RRBs)
- Co-operative Banks (Urban, State, and Central)
- All-India Financial Institutions
- Non-Banking Financial Companies (including Housing Finance Companies)
II. Investment Limits
- Individual Limit: No RE shall invest more than 10% (ten percent) of the corpus of an AIF scheme.
- Collective Limit: The total investment by all REs in a single AIF scheme shall not exceed 20% (twenty percent) of its corpus.
III. Provisioning Norms: Where a RE invests over 5% (five percent) of the corpus in an AIF scheme that holds downstream non-equity exposure to a debtor company of the RE, the RE must make 100% (hundred percent) provision on its proportionate exposure, capped at the amount of direct exposure.
Investments in subordinated units of AIFs must be deducted entirely from capital funds, apportioned between Tier-1 and Tier-2 capital.
IV. Exemptions:
- Investments made with prior RBI approval under the 2016 Master Directions are exempt from the above investment limits.
- RBI may notify certain AIFs as exempt from these Directions (excluding the general requirement on internal policy).
V. Repeal and Transitional Provisions: The following circulars are repealed effective from the new Directions’ effective date:
- DOR.STR.REC.58/21.04.048/2023-24 dated 19.12.2023
- DOR.STR.REC.85/21.04.048/2023-24 dated 27.03.2024
VI. Existing fully honoured investments will continue to be governed by the existing circulars and the investments made under commitments entered into before the effective date may comply either with the existing circulars or the revised Directions.
[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12886&Mode=0