Overview
On March 27, 2024, the Reserve Bank of India (RBI) introduced specific directives to streamline the investment practices of regulated entities (REs) in Alternative Investment Funds (AIFs). These guidelines are enacted under the authority of Sections 21 and 35A of the Banking Regulation (BR) Act, 1949, combined with other pertinent legislative frameworks including the RBI Act, 1934, and the National Housing Bank (NHB) Act, 1987.
Key Provisions of the Directive
- Scope of Investments:
- REs are permitted to include various investments such as hybrid instruments in AIFs, but must exclude equity shares of debtor companies from downstream investments.
- Provisioning Requirements:
- Provisioning by REs is mandated only to the extent of their actual investment in the AIF schemes that are directly invested in a debtor’s company, rather than the total investment in the AIF.
- Exclusions:
- The directive does not apply to investments made through intermediaries like mutual funds or fund of funds.
Background and Context
- Previous Restrictions: In December 2023, the RBI had imposed restrictions on banks and NBFCs preventing them from investing in AIFs that engage in downstream investments in debtor companies. Affected institutions were required to either divest such investments within 30 days or face a necessity to provision 100% against them.
Recent Developments in Payment Aggregator Licenses
RBI’s Licensing to Payment Aggregators
- New Licensees:
- Innoviti Payments: Known for deploying offline point-of-sale (PoS) systems, it has now secured an online payment aggregator (PA) license.
- Concerto Software: Operates Vegaah payment gateway and has also been granted the PA license.
- Other Notables: CCAvenue (under Infibeam Avenues) and MSwipe have also received their PA licenses, enhancing their capacity to offer omnichannel experiences to their customers.
Regulatory Implications
- Settlement and Compliance: As PAs, these companies are authorized to settle e-commerce transactions and must comply with existing RBI regulations governing such activities.
Summary
The RBI’s recent directives for investments in AIFs by REs clarify permissible investment avenues and provisioning norms to mitigate risks associated with high-exposure investments in debtor companies. Additionally, the granting of new PA licenses to several key players in the payments industry, including Innoviti Payments and Concerto Software, marks a significant development in India’s financial technology landscape, promoting greater compliance and expansion in digital payment services. These measures collectively enhance the regulatory framework and support the integration of innovative financial services with established banking standards.
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