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The Reserve Bank of India (RBI) has issued new rules for how banks and other regulated financial institutions can invest in Alternative Investment Funds (AIFs). The new framework, called the Reserve Bank of India (Investment in AIF) Directions, 2025, will take effect from January 1, 2026. Regulated entities (REs) can also choose to adopt the rules earlier, if their internal policy allows.
The guidelines apply to commercial banks, co-operative banks, all-India financial institutions, and non-banking financial companies (NBFCs), including housing finance firms.
Key changes
Under the new directions, no single RE can invest more than 10% of an AIF scheme’s total corpus. All regulated entities together cannot contribute more than 20% to one AIF scheme.
If an RE invests more than 5% in an AIF that, in turn, invests in any of its own borrower companies (except in equity instruments), the RE must set aside provisions equal to that portion of its exposure. The maximum provisioning will be limited to its direct exposure to the borrower.
If the RE’s investment is in the form of subordinated units, the entire amount must be deducted from its capital funds, equally from Tier-1 and Tier-2 capital, wherever applicable.
Who is a debtor company?
The RBI defines a ‘debtor company’ as any company that has received a loan or investment (other than equity) from the RE in the past 12 months.
Exemptions
Investments or commitments made earlier with RBI’s approval under the Master Direction – Financial Services provided by Banks, 2016 are exempt from the new limits on contributions.
The RBI can also exempt certain AIFs from these rules in consultation with the government.
Old circulars repealed
With this update, the RBI has repealed its previous circulars on AIF investments issued in December 2023 and March 2024. Any new commitments after the new rules come into effect must follow the revised directions.
Existing investments will continue under the old rules or the new ones — depending on what the bank or NBFC chooses to follow in full.
The RBI said it has updated the norms after reviewing industry feedback and SEBI’s rules on due diligence for AIFs.
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First Published: Jul 29, 2025 5:38 PM IST
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