India's markets regulator on Tuesday asked fund managers of alternate investment funds (AIFs) to exercise stricter due diligence of investors to prevent circumvention of rules, including "evergreening" or masking of stressed loans.
AIFs are privately pooled funds investing in listed, unlisted and other asset classes.
Fund managers are required to review AIF schemes that have a sponsor regulated by India's central bank, in accordance with 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, asked for a tighter review of large investors before they could avail of benefits from the AIFs.
The regulator also added that investors from countries sharing a land border with India could invest in AIFs only after approval from the government.
Both the Reserve Bank of India and SEBI have expressed concerns over instances of AIFs being used to "evergreen" bad loans. The RBI has also publicly warned against the practice, which refers to new loans given to stressed borrowers to enable them to repay existing loans.
In October 2023, Reuters reported, citing sources, that SEBI and the RBI were investigating cases involving 150 billion to 200 billion rupees ($1.8 billion to $2.4 billion) where AIFs were misused.
Following this, the RBI tightened rules for banks and non-banking financial companies investing in AIFs.
