Bank investments in AIFs to get same treatment as VCFs, says RBI

The regulator said it had received queries from banks on applicability of the prudential treatment for investment in VCFs to investment in AIFs

Reserve Bank of India said on Wednesday that investments by commercial banks in Alternate Investment Funds (AIFs) category-I and II will get the same prudential treatment applicable to investment in Venture Capital Funds.

RBI said it had received queries from banks on applicability of the prudential treatment for investment in VCFs to investment in AIFs.

AIF means fund established or incorporated in India, a privately pooled investment vehicle, that collects funds from sophisticated investors (Indian or foreign). AIFs invest funds in line with a defined investment policy for the benefit of its investors.

AIF I invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or sectors which the government\ regulators consider as socially or economically desirable. AIF II category funds like real estate funds, private equity funds (PE funds), funds for distressed assets. They do not undertake leverage or borrowing other than to meet day-to-day operational requirements.

According to RBI norms for valuation of investments, the quoted equity shares / bonds/ units of VCFs in the bank's portfolio should be marked to market preferably on a daily basis, but at least on a weekly basis.

As for unquoted shares/bonds/units of VCFs, they are transferred from Held to Maturity to Available for Sale (AFS) category after completion of three years and are valued differently.