Sebi specifies checks for AIFs to curb circumvention and ever-greening

Due diligence has been mandated for schemes where investors from the same group contribute 50 per cent or more to the corpus before availing the benefits of QIB status

The Securities and Exchange Board of India (Sebi) on Tuesday issued fresh guidelines on due diligence of investors in the alternative investment funds (AIFs) to prevent circumvention of norms and ever-greening of loans.

The due diligence is specifically for investments by entities regulated by the Reserve Bank of India (RBI), investments from countries sharing land borders with India, and those availing benefits of qualified institutional buyer (QIB) status.

According to an earlier communication from Sebi in January, it had found nearly Rs 30,000 crore worth of investments in circumvention.  

The RBI had last year raised concerns on the instances of ever-greening of stressed loans through AIFs and had also for a limited period restricted investments from its regulated entities. It had directed banks and NBFCs to do provisioning for their investments in debtor firms made through AIFs. However, later the banking regulator provided some relief.  

Sebi had also earlier pointed out instances of violation of FEMA regulations.

Sebi has pointed out that if the specific investments do not satisfy the due diligence checks, then either such an investor can be excluded from that investment or that investment will not be made.

The market regulator has directed AIF managers to submit an undertaking by April 7, 2025 on the due-diligence. If the investments do not satisfy the due diligence, they will have to report such investments to custodians before the April 7, 2025 deadline.

The due-diligence framework includes detailing investments in AIFs where the sponsor or manager is RBI regulated or has investors who are regulated by RBI and contribute 25 per cent or more of the corpus.

“If an investor of the scheme is an AIF, or a fund set up outside India or in International Financial Services Centres in India, then the criteria check for investor(s) regulated by RBI shall be carried out on a look through basis,” said Sebi.

Further, to curb misuse of the QIB route, the market watchdog has specified checks. These are to prevent AIFs from facilitating the benefits of QIBs to investors who otherwise are ineligible for the QIB status of their own.  

Due diligence has been mandated for schemes where investors from the same group contribute 50 per cent or more to the corpus before they avail the benefits of QIB status.

Sebi has also specified due-diligence in case of schemes where 50 per cent or more corpus is from investors from countries bordering India or the beneficial owners are from land-bordering countries. If such an AIF scheme holds 10 per cent or more in equity or equity linked securities of an investee company, then that too will have to be reported to the custodians within 30 days of investments.

Investors from land-bordering countries are allowed to invest only after the approval of the government.

Additionally, custodians will have to compile the data and submit it to Sebi by May 7, 2025. 

Sebi proposes new rules for sharing of financial mkt data
 

The Securities and Exchange Board of India (Sebi) has proposed a revised framework for sharing data aimed at promoting more democratisation, privacy, and accountability. Based on Sebi’s market data advisory committee (MDAC) suggestion, the regulator has proposed that it can share data that is under its ownership, while market infrastructure institutions (MIIs) should share their generated data through their own policies. Under the proposed framework, Sebi has said each MII will have to frame their data sharing policies and share the data lists with the regulator within 60 days.


BS reporter