Rs 1-Trn AIF Structured To Circumvent Regulations: Sebi

Mumbai: About a fifth of all investments by AIFs has been structured to circumvent existing fi-nancial regulations like the ones on non-performing assets (NPA) classification, Sebi’s whole-time member Ananth Narayan G said on Tuesday.

In a consultation paper floated in January, Sebi had pegged the circumvention by the industry at Rs30,000 crore. The year also saw the Reserve Bank acting strongly against banks’ AIF invest-ments by asking for higher provisioning on such bets because of such concerns. Addressing an event on Alternative Investment Funds (AIFs) organized by CII here, Narayan said the industry has been pressing for light-touch regulations, but made it clear that it is the structuring of the funds for circumventing existing laws which is a deterrent on the same.

“Of the Rs4.5 lakh crore of investments (by AIFs), around Rs1 lakh crore has been questionable in terms of the regulatory intent behind those investments. More than 20 per cent of the draw-down is not a small number. And this is just what we've seen,” the Sebi WTM added.

The circumventions include NPA recognition norms prescribed by RBI, ones relating to bank-ruptcy laws and stressed asset resolutions, and even those under Foreign Exchange Management Act, he said. Sebi has been trying to act in a ‘focused manner’ on this, Narayan said, adding that deploying the code of conduct on the industry wherein it lays down simple dos and donts, are among the efforts it has undertaken.

He said the code of conduct laid down last year is working ‘reasonably well’ and there is a case for offering more flexibility to the industry. Some of the regulatory restrictions put in place earlier because of fear of circumventions can now be relaxed, like tranching, where it has allowed it in case of government and multilateral agencies, he said.

“This can be even expanded further as long as we get collective comfort around checks and bal-ances to ensure this is not being misused,” he said, hinting that broadening the framework on share pledges beyond the infrastructure sector can also be in the offing.