RBI issues the Reserve Bank of India (Investment in AIF) Directions, 2025

The Reserve Bank of India (RBI) had issued guidelines relating to investment by the regulated entities (REs) in alternative investment funds (AIFs) on December 19, 2023. Subsequently, certain clarifications were issued vide circular dated March 27, 2024.

Concurrently, the Securities and Exchange Board of India (SEBI) had also introduced guidelines mandating specific due diligence on AIFs and their investors to prevent regulatory circumvention. In light of these developments, the RBI has recently published the revised directions vide Reserve Bank of India (Investment in AIF) Directions, 2025 (Revised Directions), after taking into account the industry feedback and the SEBI regulations. The Revised Directions shall come into force from January 1, 2026, or from any earlier date as decided by a RE as per its internal policy

The key aspects under the Revised Directions include inter alia the following:

• Investments in AIF schemes to comply with regulatory norms

All REs’ investment policy shall have suitable provisions governing its investments in an AIF Scheme, compliant with extant law and regulations.

• Limits on Investments and Provisioning

(i) No RE shall individually contribute more than 10 per cent of the corpus of an AIF scheme.

(ii) Collective contribution by all REs in any AIF scheme shall not be more than per cent of the corpus of that scheme.

(iii) If an RE contributes more than five per cent of the corpus of an AIF scheme, which also has downstream investment (excluding equity instruments) in a debtor company of the RE, then the RE shall be required to make 100 per cent provision to the extent of its proportionate investment in the debtor company through the AIF scheme, subject to a maximum of the direct loan and/ or investment exposure of the RE to the debtor company..

(iv) Notwithstanding point (iii) above, if the RE’s contribution is in the form of subordinated units, then it shall deduct the entire investment from its capital funds – proportionately from both Tier-1 and Tier-2 capital (wherever applicable).

• RBI to Exempt Certain AIFs

The RBI, in consultation with the Government of India, by a notification, exempt certain AIFs from the scope of the existing circulars and the Revised Directions (except for the general requirement prescribed thereunder). Presently, outstanding investments or commitments of a RE, made with prior approval from the Reserve Bank under the provisions of Master Direction – Reserve Bank of India (Financial Services provided by Banks) Directions, 2016, are excluded from the scope of the limits on investments and provisioning stated in point (i) and (ii) above.

For more details, kindly refer to the Revised Directions notified by the RBI, available by clicking on this link.