SBI made Rs 240 crore AIF provision in December quarter, says Chairman Dinesh Khara

The bank's gross non-performing asset (NPA) stood at 2.42 percent, down from 3.14 percent recorded in the corresponding quarter last year

Country’s largest lender, State Bank of India (SBI) has made a provision of Re 240 crore on its investment in alternative investment funds (AIFs), said Dinesh Khara, Chairman of the bank on February 3. "We have made a provision of Rs 240 crore on our investments to AIFs. Our total exposure to AIFs is around Rs 1,000 crore," Khara said at a press conference post the announcement of the quarterly results.

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.

Also read: RBL Bank made contingent provision of Rs 115 crore on AIF investments: CEO

“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.

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.

Other than SBI, lenders like HDFC Bank, Kotak Mahindra Bank, Axis Bank and others also made provisions. For example, Kotak Mahindra Bank made a provision of 143 crore and Axis Bank made a provision of Rs 182 crore.