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Jayshree P. Upadhyay
(Reuters) – India’s central bank and market regulator are considering exempting banks from recently strengthened rules for investing in alternative investment funds (AIFs), citing unintended consequences, the issue said. This was revealed by three sources with direct knowledge of the matter.
The Reserve Bank of India (RBI) last month ruled that banks and non-bank lenders cannot invest in AIFs held by current or recent borrowers of banks to avoid cases of “evergreen” bad loans. and asked lenders to sell their existing lenders. An investment within one month, or a reserve against it.
But the industry claims the new norms will hinder growth. The rules will affect about $8 billion to $10 billion worth of investments, according to the AIF’s lobbying group, the Indian Venture and Alternative Capital Association (IVCA).
Srini Srinivasan, managing director of Kotak Investment Advisors, India’s largest firm, said, “The unintended impact of the RBI notification has caused banks and non-banking financial institutions to refrain from investing in AIFs for fear of running afoul of regulations.” “I will refrain from doing so,” he said. Alternative asset managers.
Regulators are therefore considering appropriate exemptions for some of the legitimate concerns, said the people, who requested anonymity because they were not authorized to speak to the media.
Reuters has learned that lenders and funds are seeking two such exemptions. The first one is for AIF, which was set up specifically to invest in distressed assets, two people familiar with the matter said.
For example, two large funds run by the State Bank of India, one investing in stressed and stalled housing projects and the other investing in small and medium enterprises, are existing borrowers of SBI. They are affected because they have direct or indirect exposure to certain companies, the people said. sauce.
“We are actively considering whether certain categories of funds, such as funds that invest in companies in financial distress, should be exempted,” one of the sources said.
Emails sent to SBI, RBI and market regulator Securities and Exchange Board of India (SEBI) went unanswered.
Banks are also asking for more time to exit those investments or to be allowed to stagger required reserves, two of the people said.
Sidharth Pai, co-chair of the IVCA’s Regulatory Affairs Committee, said: “Due to regulatory constraints, haircuts can amount to as much as 80% of net asset value, so there is a 30-day deadline to offer or exit the investment. It’s unrealistic.” .
In financial terms, a haircut refers to the difference between the fair value of an asset and the amount a lender could recover from a sale.
Pai said he believes it will take at least a year for the industry to exit.
(This article has been reposted to correct date)
(Reporting by Jayshree P Upadhyay; Editing by Sohini Goswami)
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