SEBI and RBI Investigate AIFs for Alleged Rule Evasion
The Reserve Bank of India (RBI) and the Protections and Trade Leading group of India (SEBI) are clearly investigating very nearly twelve cases in which substitute venture reserves (AIFs) are purportedly used to get around rules, including “evergreening” upset advances.
As per a Reuters story, the market controller found that AIFs had been inappropriately utilized in basically twelve cases, adding up to between Rs 15000 and Rs 20000 crore, to get around the guidelines of other monetary controllers.
It further stated that non-bank finance companies (NBFCs) selling distressed loans to AIFs and using the additional funds to pay back the initial debt are among the cases under investigation.
This technique, called “evergreening,” is used to manage problematic or stressed loans.
Governor of the RBI Shaktikanta Das said in May that the bank has discovered multiple instances of lenders attempting to conceal the actual amount of bad loans in its records.
“We have observed some cases of creative ways to hide the true status of loans under stress during our supervisory process,” Das stated.
The AIFs may face penalties and limitations if it is determined that they were complicit.
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Additionally, Sebi is investigating if any AIFs have been utilized to get around restrictions on foreign investment in particular industries.
Investigating private credit funds, which have attracted substantial capital from domestic and international high net worth investors due to their lax restrictions and flexibility, may result in disclosures and increased scrutiny for this type of investment.
The number of instances of misuse found is “material,” according to a source cited in the paper, even though the sum is little compared to the Rs 8.4 lakh crore managed by AIFs.
Inquiries into these cases have also been opened by the RBI. In the worst situations, such misuses of AIFs may lead to fines or prohibitions on conducting business.
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