Private sector lender Kotak Mahindra Bank, on January 20, said that it has made a provision of Rs 143 crore on its alternate investment fund (AIF) investments.
“The bank made a Rs 143 crore provision (post-tax) on applicable alternate investment fund (AIF) investments pursuant to RBI’s circular dated December 19, 2023," the bank said in a press release.
The Reserve Bank of India, on December 19, said that regulated entities, such as banks, non-bank lenders, and home financiers, cannot invest in alternative investment funds (AIFs) that have directly or indirectly invested in companies that have borrowed money from the lenders.
Also read | Kotak Mahindra Bank Q3 Results: Net profit up 7.6%, asset quality healthy
Other than Kotak Bank, lenders like HDFC Bank and RBL Bank also made provisions complying with the central bank’s guidelines.
Also read: HDFC Bank has made 100% contingent provision on its AIF book, says CFO
Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank, said: "Our AIF book is Rs 1,220 crore and the current applicable Reserve Bank of India (RBI) circular asks us to take a provision on that and by January 18. On a prudent basis, we have done the assessment and taken the provision now. We have made a contingent provision of 100 percent of our AIF book."
And RBL Bank, on January 19 said that it has made a contingent provision of Rs 115 crore on its AIF investments to comply with RBI's recent regulations on alternative investment funds exposure.
“The bank took a provision of Rs 115 crore on AIFs as per the recent RBI circular. These investments are primarily in venture debt funds which have been made over years for building inroads into new-age digital businesses," said Subramaniakumar in a post-results press conference.
AIF guidelines
RBI highlighted regulatory concerns regarding certain transactions involving AIFs by regulated entities that have come to its notice and released guidelines for investments in AIFs by the lenders regulated by it.
“These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs,” the RBI said.
The guidelines, RBI said, have been introduced to address concerns about potential evergreening through this route.
Also read: RBL Bank made contingent provision of Rs 115 crore on AIF investments: CEO
Regulated entities (REs) shall not make investments in any scheme of AIFs that has downstream investments either directly or indirectly in a debtor company of the RE.
The RBI said lenders need to liquidate their investment in the scheme within 30 days if the AIF scheme, in which lenders are already investors, makes a downstream investment in any such debtor company.
Further, if lenders have already invested into schemes having downstream investment in their debtor companies as of date, the 30-day period for liquidation shall be counted from the date of issuance of this circular, the RBI added.
If lenders fail to liquidate their investments within 30 days, they need to make 100 percent provision on such investments, the RBI noted.
The central bank also said that investment by REs in the subordinated units of any AIF scheme with a "priority distribution model" shall be subject to full deduction from RE’s capital funds.
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