RBI Issues New Directions on AIF Investments by Banks and NBFCs
The RBI has issued new AIF investment rules for banks and NBFCs, capping exposures and tightening risk provisions from January 2026
RBI Issues New Directions on AIF Investments
RBI Issues New Directions on AIF Investments
The Reserve Bank of India (RBI), through Notification No. DOR.STR.REC.43/21.04.048/2025-26 dated July 29, 2025, has issued a new set of guidelines titled the “Reserve Bank of India (Investment in AIF) Directions, 2025.” These directions provide a revised regulatory framework for investments made by regulated entities (REs) in Alternative Investment Funds (AIFs).
The new rules, which will come into effect from January 1, 2026, or earlier if adopted voluntarily by the entities, apply to various categories of financial institutions, including:
- Commercial Banks (including Small Finance Banks, Regional Rural Banks, and Local Area Banks)
- Co-operative Banks (Urban, State, and Central)
- All-India Financial Institutions
- Non-Banking Financial Companies (NBFCs), including Housing Finance Companies
Key Highlights of the Notification:
Investment Limits Introduced
- No regulated entity is allowed to invest more than 10% of an AIF scheme’s total corpus individually.
- The combined investment by all REs in a single AIF scheme is capped at 20%.
Provisioning for Risky Exposures
Suppose an RE invests over 5% in an AIF that in turn invests in a “debtor company”, a company to which the RE has provided a loan or had investment exposure in the past 12 months (excluding equity). In that case, the RE must make a 100% provision for the exposure.
If the RE’s investment in the AIF is in the form of subordinated units, it must deduct the entire investment from its regulatory capital (Tier-1 and Tier-2).
Policy and Compliance Requirements
REs are now required to have an internal investment policy that clearly governs AIF-related investments, ensuring adherence to applicable laws and SEBI regulations.
Exemptions and Transitional Provisions
- Investments made under prior approval from RBI, under the 2016 Master Directions, are exempt from the new percentage limits.
- RBI may exempt specific AIFs from these rules (except for the policy requirement), in consultation with the Government of India.
- The new rules repeal the earlier circulars dated December 19, 2023 and March 27, 2024, but give regulated entities the option to follow either the old or the new framework for commitments made before January 1, 2026.
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