The Securities and Exchange Board of India (Sebi) has unveiled new due diligence guidelines for alternative investment funds (AIFs) to prevent regulatory circumvention and loan ever-greening. These rules affect investments by entities overseen by the Reserve Bank of India (RBI), those from nations bordering India, and investors leveraging qualified institutional buyer (QIB) status.
Previously, Sebi identified regulatory evasion involving nearly ₹30,000 crore in investments. Concerns were also raised by the RBI over the ever-greening of stressed loans via AIFs, which led to temporary restrictions for RBI-regulated entities. Banks and NBFCs were instructed to provision for these investments, though some relief was later offered.
Sebi has mandated that any investment failing the due diligence checks must be excluded or not pursued. AIF managers must submit a compliance undertaking by April 7, 2025, and promptly report non-compliant investments to custodians. The guidelines highlight the necessity for detailed assessments concerning RBI-regulated sponsors or investors contributing 25% or more to the fund.
Due diligence is notably important for schemes in which investors from the same group contribute 50% or more of the corpus before accessing QIB benefits. It also extends to AIF schemes receiving significant investments from countries adjacent to India, where government approval is essential.
Finally, custodians must compile and submit their reports to Sebi by May 7, 2025.
Original Story https://www.business-standard.com/markets/news/sebi-specifies-checks-for-aifs-to-curb-circumvention-and-ever-greening-124100801054_1.html
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