In a move aimed primarily at preventing ‘evergreening’ of loans, the RBI, by a Circular issued on December 19, 2023, directed that all commercial banks (including small finance banks, local area banks and regional rural banks), primary (urban) co-operative banks / state co-operative banks / central co-operative banks, all-India financial institutions and NBFCs (including HFCs) (collectively, ‘Regulated Entities’) cannot make investments in AIFs, if the AIF has made any investment (either directly or indirectly) into a ‘debtor company’ of the Regulated Entities, which includes any company to which the Regulated Entity currently has or previously had a loan or investment exposure anytime during the preceding 12 months. Existing investments by Regulated Entities in AIFs that have such investments in a ‘debtor company’ of the Regulated Entity should be liquidated by the Regulated Entity within 30 days, failing which Regulated Entities are required to make a 100 percent provision on such investments. Further, the RBI also directed Regulated Entities to ensure that investments made by Regulated Entities in subordinated units of any AIF scheme with a ‘priority distribution model’ (as defined by SEBI in its Circular of November 23, 2022) are subject to full deduction from the Regulated Entity’s capital funds.