AIFs are privately pooled funds that invest in listed, unlisted and other asset classes.
Fund managers must review FIA schemes that have a sponsor regulated by the central bank of India, according to a specific set of rules. These rules are mandated by a forum that works with the Securities and Exchange Board of India (SEBI) and outlines how investor data is handled.
SEBI, in a circular on Tuesday, called for stricter screening of large investors before they could avail benefits of AIFs.
The regulator also added that investors from countries sharing a land border with India could invest in FIA only after government approval.
Both the Reserve Bank of India and SEBI have raised concerns over instances of AIFs being used for “perennial” bad loans. The RBI has also publicly warned against this practice, which refers to new loans given to distressed borrowers to enable them to repay existing loans.
In October 2023, Reuters reported, citing sources, that SEBI and the RBI were investigating cases involving Rs 150,000 to Rs 200,000 crore ($1.8 to $2.4 billion) in which AIFs were being misused.
The RBI then tightened norms for banks and non-banking financial companies investing in AIFs.
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