Union Bank of India makes Rs 12.17 crore provision on AIF investment

Union Bank of India

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Union Bank of India on January 20 said the state-owned lender has made a provision of Rs 12.17 crore on its alternate investment fund (AIF) investments.

“Pursuant to the RBI circular dated 19th December 2023, bank has made a provision of Rs 12.17 crore in respect of investments in AIF during the- quarter ended December 31, 2023,” bank said in the result document.

The Reserve Bank of India on December 19, said that regulated entities, such as banks, non-bank lenders, and home financiers, cannot invest in AIFs that have directly or indirectly invested in companies that have borrowed money from the lenders.

Other than Union Bank of India, Kotak Mahindra Bank, HDFC Bank and RBL Bank also made provisions complying with the central bank’s guidelines.

HDFC Bank made 100 percent provisions on their AIF book. Similarly, RBL Bank and Kotak Mahindra Bank made provisions of Rs 115 crore and Rs 143 crore on AIF investments, respectively.

The 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.

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 on 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.