The Reserve Bank of India (RBI) on Tuesday introduced regulations to prevent banks and non-banking financial companies (NBFCs) from utilising the alternative investment fund (AIF) route to 'evergreen' their loans. RBI says it has been noticing a practice whereby banks and NBFCs, when saddled with a stressed borrower, float an AIF, invest in it, and ensure that the AIF lends the money to a stressed company which then repays its lenders (banks/NBFCs). The AIF itself redeems its units after 6 or 7 years, giving ample time for the company to turnaround. In its reprisal, the RBI has said that if the banks & NBFCs own units in AIFs which have lent to their existing borrowers, then the banks & NBFCs have to sell the units in 30 days. Alternatively, if the lenders continue to hold AIF units, they have to fully provide for their exposure in the borrower. In some cases, AIFs insist that the borrowing company has to first pay the AIF, if it goes to bankruptcy. This in legal language is called Priority Distribution Model. In such cases, the central bank says that the lenders have to provide capital to the extent of the units they own. Who are the casualties of the RBI's new provisioning & capital penalty? Catch Latha Venkatesh in conversation with S Sriniwasan, Managing Director, Kotak Alternate Asset Management on the repercussions of RBI's new rules to prevent evergreening of loans. He believes that the entire Alternate Investment Fund industry is going to be damaged by this move. Listen in.
#rbi #alternateinvestmentfund #AIF #banks #NBFCs #cnbctv18 #businessnews #businessnewstoday #businessnewsinenglish #sharemarkettoday
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16 сен 2024
