Piramal Enterprises wrote back Rs 1,067 crore from AIF provisions in Q4

The company also made a recovery of Rs 450 crore in Q4FY24 from its AIF provisions.

Piramal Enterprises, the financial services arm of the Piramal Group, wrote back Rs 1,067 crore from provisions for its holdings in alternative investment funds (AIF) in keeping with guidelines issued by the Reserve Bank of India.

“We wrote back Rs 1,067 crore from the provisions and made a recovery of Rs 450 crore in Q4,” Jairam Sridharan, managing director of Piramal Finance, said on a post-results conference call. He said the company expects to make further recoveries from pending provisions of Rs 2,000 crore.

The company reported a loss of Rs 2,378 crore in Q3 of FY24 after setting aside Rs 3,540 crore to cover its investment in AIFs.

The Reserve Bank of India on December 19, 2023, barred regulated entities such as banks, non-bank lenders and home financiers from investing in AIFs that have directly or indirectly invested in their borrower companies.

It said lenders that fail to liquidate their investments within 30 days will need to make 100 percent provision on such investments.

Also read: Post RBI relaxation, top banks write back Rs 457 crore from provisions in AIFs

RBI’s latest relaxation

The RBI said in a clarification on March 27 that the definition of such downstream investments will exclude investments in equity shares of a debtor company of the lender. However, the rules will apply to all other investments, including those in hybrid instruments.

Further, provisioning will be required only to the extent of the lender's investment in the debtor company through the AIF and not on its entire investment in the AIF scheme, the RBI said.

Also, investments by lenders in AIFs through intermediaries such as a fund of funds or mutual funds are not included in the scope of the earlier RBI circular, the central bank said.

These rules were introduced to ensure uniformity in implementation among lenders and to address concerns flagged in various representations received from stakeholders, the RBI said.

Regulatory concerns

Also read: Easier provisioning of AIF investments may help lenders allot more to such funds, say experts

On January 24, a Moneycontrol analysis showed that at least six Indian banks made a combined provision of over Rs 1,070 crore on their investments in AIFs after the RBI's directive.

In a press release, the RBI said regulatory concerns regarding certain transactions involving AIFs by regulated entities (REs) had come to its notice and released guidelines for investments in AIFs by 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, it said, have been introduced to address concerns over potential evergreening through this route.

The central bank also said that investment by REs in subordinated units of any AIF scheme with a "priority distribution model" shall be subject to full deduction from an RE’s capital funds.