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AIF-II cheer as bank taps open

Lenders stopped investing in PEs & credit funds after last year's master risk circular by the apex bank

Ranju Sarkar & Abhijit Lele  |  New Delhi/Mumbai 

AIF-II cheer as bank taps open

The (RBI) has allowed to resume investing in or (AIFs). It means that can again invest in equity and debt funds of private equity (PE) firms. This follows a master risk circular by the RBI on Monday which provides a cap on every type of investment can make. The 2016 risk circular had excluded the main category of AIF — by not mentioning it. 
For the past one year, could not invest in private equity or credit funds, say managers at PE firms. ‘‘It is an important development, as 60 per cent of funds pooled goes into — PE and credit funds,’’ says Gopal Srinivasan,  chairman, Indian Venture Capital Association (IVCA). He is also the founder and chairman and managing director of PE firm TVS Capital.

Since the new in 2012, they have received commitments of nearly Rs 1 lakh crore, of this, Rs 58,000 crore got pooled in ‘‘are a significant source, they provide 5-10 per cent of the capital,’’ he says. This, along with other positive changes in the past few years, has created a lot of excitement in the industry, says Srinivasan.

AIF-II cheer as bank taps open

The 2012 had categorised the funds into two groups. AIF-I, which covered venture capital funds, funds of small and medium businesses and infra funds, where the government may want to provide some policy concessions; and — PE and credit funds. These funds were growing steadily and since the new regulations in 2012, nearly Rs 1 lakh crore of money was pooled into AIFs, which makes them significant. The pool is Rs 6-7 lakh crore. 

has been working with various authorities, including the RBI. ‘‘When this came we were very happy because, for one year had stopped investing in PE and credit funds, which they have been investing for the past 20 years,’’ says Srinivasan. 

From the industry perspective, this is good news as there are many credit funds such as Trifecta Capital, Innoven Capital besides PE firms like KKR that do a lot of debt funding. Credit funds take high-risk exposure to mid-size companies, which are unwilling to take.

The 2016 RBI’s master risk circular said could invest up to 10 per cent in AIF-I. In the pre-2012 regime, were investing in all kinds of venture capital funds, as there was no categorisation. In 2012, when the Securities and Exchange Board of India (Sebi) came up with AIF regulations, it categorised funds into AIF I and AIF-II, but continued to invest, mainly in  When the 2016 circular came out, they put a pause in their investments. 

Many such as Bank of Baroda had made commitments to credit funds, but stopped investment because of policy ambiguity. The PE industry clarified with the RBI, “since you have not mentioned AIF-II, does it mean can’t invest in them or is it ambiguous.” 

The RBI clarification comes following a representation by the industry and others, including the Narayan Murthy-led Sebi’s Alternative Investment Advisory Committee. But, how much capital can PEs expect to invest? ‘‘In a four-year cycle, on average, should be investing around Rs 10,000 crore,’’ says Srinivasan.

pool attracts both dollars and rupees. are not the only investors. AIFs attract high net-worth individuals (HNIs), insurance companies and foreign flows. Now, are also going to invest in incremental news, says a fund manager. ‘‘These things can happen, but it is important to note how quickly it is sorted out. These are systematic changes to make the industry more effective,’’ says Srinivasan.

First Published: Thu, September 28 2017. 00:10 IST