Alternative Investment Funds: Apex PE-VC body seeks govt’s help to ease AIF curbs

Mumbai: The Indian Venture and Alternate Capital Association, or IVCA, is reportedly in discussions with central government officials to help ease the wide-ranging curbs the banking regulator imposed earlier this week on Alternative Investment Funds (AIFs), potentially choking institutional fund flows to a high-risk and hitherto lightly regulated investment vehicle experts believe could be misused to evergreen doubtful corporate loans.

SIDBI, which loans funds to small industries, and various AIFs are simultaneously seeking clarity or relief amid the sudden changes in AIF investments ordered by the Reserve Bank of India (RBI).

“The industry association had a meeting with senior government officials and expects some relief or clarity within the next 30 days,” said a source at the grouping that represents the interests of private equity and venture funds. An IVCA spokesperson declined to comment on the specifics as the discussions are on. The industry has flagged its concerns to the government and the finance ministry is examining these, a senior government official told ET.

The industry is concerned about the close-ended nature of AIFs, where institutions with existing lending relationships with investee portfolio entities face a tight 30-day timeline from December 19, 2023, to liquidate investments, failing which they must provision 100% for such investments.

The RBI has prohibited investments in AIFs by mainstream banks and non-banking financial companies (NBFCs), with a requirement for divestment if lending institutions have invested in AIF units that also lent to a company borrowing from the same institution.

Provisions for cases where banks or NBFCs invest in AIFs that subsequently lend to their own borrowing companies have been raised.

NBFC Stocks Slide
Shares of NBFCs such as Piramal Enterprises have lost up to 8% since the curbs were ordered on December 19. Piramal Enterprises and IIFL have Rs 4,500 crore (7% of AUM) and Rs 1,100 crore (2% of AUM including AIF) of investments in AIFs, respectively, Jefferies said in a report.

SIDBI, among the affected NBFCs, is the worst hit by the altered central bank guidelines, said the first source cited above. According to its website, SIDBI has set up India Aspiration Fund (IAF), a Rs 2,000-crore vehicle, to make equity investments in start-ups and MSMEs.

Also, SIDBI contributes to Venture Funds/Alternative Investment Funds (Category I & II) under the Fund of Funds. These invest in MSMEs/startups. SIDBI manages three FoFs on behalf of the respective ministries: Fund of Funds for Startup (FFS) by DPIIT (Ministry of Commerce and Industry, GoI), ASPIRE Fund (Ministry of MSME, GoI), and UP Startup Fund for the Government of Uttar Pradesh.

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Mumbai: The Indian Venture and Alternate Capital Association, or IVCA, is reportedly in discussions with central government officials to help ease the wide-ranging curbs the banking regulator imposed earlier this week on Alternative Investment Funds (AIFs), potentially choking institutional fund flows to a high-risk and hitherto lightly regulated investment vehicle experts believe could be misused to evergreen doubtful corporate loans.

SIDBI, which loans funds to small industries, and various AIFs are simultaneously seeking clarity or relief amid the sudden changes in AIF investments ordered by the Reserve Bank of India (RBI).

“The industry association had a meeting with senior government officials and expects some relief or clarity within the next 30 days,” said a source at the grouping that represents the interests of private equity and venture funds. An IVCA spokesperson declined to comment on the specifics as the discussions are on. The industry has flagged its concerns to the government and the finance ministry is examining these, a senior government official told ET.

The industry is concerned about the close-ended nature of AIFs, where institutions with existing lending relationships with investee portfolio entities face a tight 30-day timeline from December 19, 2023, to liquidate investments, failing which they must provision 100% for such investments.

The RBI has prohibited investments in AIFs by mainstream banks and non-banking financial companies (NBFCs), with a requirement for divestment if lending institutions have invested in AIF units that also lent to a company borrowing from the same institution.

Provisions for cases where banks or NBFCs invest in AIFs that subsequently lend to their own borrowing companies have been raised.

NBFC Stocks Slide
Shares of NBFCs such as Piramal Enterprises have lost up to 8% since the curbs were ordered on December 19. Piramal Enterprises and IIFL have Rs 4,500 crore (7% of AUM) and Rs 1,100 crore (2% of AUM including AIF) of investments in AIFs, respectively, Jefferies said in a report.

SIDBI, among the affected NBFCs, is the worst hit by the altered central bank guidelines, said the first source cited above. According to its website, SIDBI has set up India Aspiration Fund (IAF), a Rs 2,000-crore vehicle, to make equity investments in start-ups and MSMEs.

Also, SIDBI contributes to Venture Funds/Alternative Investment Funds (Category I & II) under the Fund of Funds. These invest in MSMEs/startups. SIDBI manages three FoFs on behalf of the respective ministries: Fund of Funds for Startup (FFS) by DPIIT (Ministry of Commerce and Industry, GoI), ASPIRE Fund (Ministry of MSME, GoI), and UP Startup Fund for the Government of Uttar Pradesh.

Stay on top of technology and startup news that matters. Subscribe to our daily newsletter for the latest and must-read tech news, delivered straight to your inbox.