RBI has, by way of the Reserve Bank of India (Investment in AIF) Directions, 2025 (‘AIF Directions’), issued on July 29, 2025, prescribed a revised framework governing investment by REs in AIFs, following a review of the earlier regulatory framework set out under RBI Circulars dated December 19, 2023, and March 27, 2024 (‘Earlier Circulars’), industry feedback and the regulations issued by SEBI relating to specific due diligence of investors and investments of AIFs. Key provisions include:

i.    Investment by a single RBI RE in an AIF scheme is capped at 10% of the scheme corpus, while aggregate investment by all REs is capped at 20% of the corpus;

ii.   where an RBI RE contributes more than five percent of the corpus of an AIF scheme and such scheme has downstream investments (other than equity instruments) in a debtor company of the RE, then such an RBI RE is required to maintain 100% provisioning to the extent of its proportionate investment in the debtor company through the AIF Scheme subject to a maximum of the direct loan and/ or investment exposure of the RE to the debtor company;

iii.  if an RE’s contribution is in the form of subordinated units, it will deduct the entire investment from capital funds, on a proportionate basis from both Tier 1 and Tier 2 capital, as applicable;

iv.   the RBI, in consultation with the Government of India, may by notification exempt specified categories of AIFs from the requirements of the AIF Directions;

v.    outstanding investments or commitments made by an RBI RE with the prior approval of RBI under the provisions of the Master Direction – Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 will be exempted from: (a) the individual 10% cap; and (b) the aggregate 20% cap on contributions across all RBI REs in an AIF scheme;

vi.   outstanding investment by a RE, as of July 29, 2025, in a AIF Scheme in which it has fully honoured its commitment, shall be governed by the provisions of the Earlier Circulars; and

vii.  investments by a RE in a AIF scheme in terms of an existing commitment as of July 29, 2025 or in terms of a new commitment entered into before the said date, the RE may either follow, in toto, the provisions of Earlier Circulars or the AIF Directions.

The Earlier Circulars stand repealed, and the AIF Directions will come into effect from January 1, 2026, unless an RBI RE opts to adopt them earlier in line with its internal policies.