About AIF

• Alternative Investment Fund or AIF is a privately pooled investment vehicle, which collects funds from investors, for investing it in accordance with a defined investment policy for the benefit of its investors.
• AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.  
• Categories of AIF:
  • Category I AIF:
    • Venture capital funds (Including Angel Funds) 
    • Social Venture Funds 
    • Infrastructure funds 
  • Category II AIF (real estate funds, private equity funds, funds for distressed assets, etc)
  • Category III AIF (hedge funds, private investment in public equity (PIPE) Funds, etc.)
• In India, AIFs are regulated by the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. 

Why in News?

• • The Reserve Bank of India has tightened norms for lenders relating to making investments in units of Alternative Investment Funds to address concerns relating to possible evergreening of stressed loans. 
  • RBI has prohibited all regulated entities (REs), including banks, cooperative banks and NBFCs from making investments in AIFs, if the AIF has made any investment into a “debtor company”. 

• Debtor company means a company in which the RE currently has or previously had a loan exposure anytime during the preceding 12 months.

Rationale of the move

• • Since several regulated entities have affiliated AIFs, routing the money through AIFs to borrowers might lead to evergreening. 

• Evergreening refers to practices to mask the true extent of bad loans by allowing delinquent borrowers to take more loans and repay existing ones.