Non-Banking Financial Companies (NBFCs) have started looking for potential buyers for their investment exposure in Alternative Investment Funds (AIFs) to meet the Reserve Bank of India’s (RBI) deadline. They are in ‘active talks’ with high networth individuals, foreign institutional investors and family offices to sell their AIF units.
“NBFCs are in touch with us to help them reduce their AIF exposure by selling it to the potential buyers,” Puneet Chaudhary, CEO, Virtuous Group and CEO of Fairdeal Corporate Advisors, an investment banking and debt broking firm, told FE.
The deals are likely to be finalised in the first or second week of next month as most of the decision-makers are on vacation, he added.
Last week, the RBI asked banks, NBFCs and other lenders not to invest in any scheme of AIFs which has downstream investments in a debtor company. The banking regulator further said that if an AIF scheme, in which Regulated Entities (RE) is already an investor, makes a downstream investment in any such debtor company, then the RE should liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF. If the REs cannot liquidate their investments within the prescribed time limit, they will have to make a 100% provision on such investments.
“The decision to liquidate their AIF investments will depend on the capital position of entities. Only those banks or NBFCs will liquidate their investors who do not have sufficient capital,” said head of treasury operations of a private bank.
The RBI’s decision has also put pressure on wealth management firms that sell AIFs. They are now getting calls from NBFCs to sell their AIF units to other investors. “These investments will go out of the books of NBFCs and banks and will finally go to HNIs, family offices or non-conventional investors like foreign banks or foreign institutions which are not regulated by the Reserve Bank,” said a senior official of an NBFC.
There were 1,220 AIFs registered with the Securities and Exchange Board of India as of December this year. Total investment commitment raised by AIFs stood at Rs 8.44 trillion as of June 30, 2023, compared to Rs 6.94 trillion as of the end of June 2022, according to SEBI data. Total funds raised by the AIFs as of the end of the June 2023 quarter was Rupees 3.74 trillion, of which Rupees 3.5 trillion worth of investment was made by the end of the first quarter.