Piramal, Edelweiss & other NBFCs Are Under Scrutiny Of RBI As It Bans Loan Evergreening Via AIFs

On December 19, the Reserve Bank of India (RBI) banned regulated entities (REs) such as banks and NBFCs from making investments in any scheme of Alternative Investment Funds (AIFs) that has investments either directly or indirectly in a debtor company of the RE. This is in light of the fact that banks and NBFCs are distributing new or additional credit to their debtors through AIFs in order to delay the detection of bad loans, make provisioning, and thus keep their books clean.

According to a report by Moneycontrol, the total investment in AIFs by RBI-regulated entities exceeds Rs 15,000 crore, and the majority of the investment belongs to Piramal Enterprises, Edelweiss, and Indiabulls. Piramal has 20.3 percent of its total investments in AIFs, Indiabulls Housing has 67.3 percent, and Edelweiss has 11.4 percent, Moneycontrol reported, quoting a note by IIFL Securities. However, the number of AIFs that keep such “doubtful investments” is not yet revealed.

According to the latest guidelines issued by the RBI, if a RE has exposure to an AIF scheme that has an investment in a debtor company of the RE, then the RE shall liquidate the investment within 30 days from the date of such investment by the AIF. If they fail to do so, it will lead them to make 100 percent provision for such investments.

According to experts, the second scenario is more likely given that the capital RE”s committed is locked in for a specific duration.

Alternative Investment Funds (AIFs) are investors fund with large exposure to venture capitals, hedge funds, non-listed companies, commodity markets, etc. Investments in AIFs are considered to be risky due to their illiquid nature.