India wants sovereign funds to be exempted from RBI’s alternative investment fund rules, sources say

Authors: Nikunj Ohri and Bhakti Tambe

NEW DELHI (Reuters) – India’s government has asked the central bank to exempt state funds from recently tightened rules on investments in alternative investment funds (AIFs), according to two government sources and a fund official.

In December, the Reserve Bank of India (RBI) asked banks and non-banking financial institutions to increase provisions for AIF investments (which also include sovereign funds) in case they are also lenders to projects in which the AIFs invest.

The rules, tightened to prevent defaults on loans in perpetuity, were partially relaxed in late March.

The government has approached the RBI seeking special dispensation for state-backed funds, including a fund called Special Window for Affordable and Mid-Income Housing (SWAMIH), set up to rescue ailing real estate projects, citing its “socio-economic objective”, two government sources said.

A fund official confirmed the government’s communication with the central bank but did not provide further details. They asked for anonymity because they are not authorized to talk to the media.

The RBI and the Finance Ministry did not immediately respond to Reuters’ request for comment.

SWAMIH, set up in 2019 to provide debt financing to stalled housing projects, is managed by SBICAP Ventures, a wholly owned subsidiary of state-owned State Bank of India.

SBI is also a large investor in the fund.

The bank made provisions of 1.2 billion rupees ($14.37 million) for its investments in AIF in the financial year ended March 31, 2024.

SBICAP Ventures did not immediately respond to Reuters emails.

The rules could make banks wary of investing in SWAMIH because they would have exposure to the projects the fund is trying to save, the first government source said.

They added that the RBI regulations “may lead to an increase in reserves booked by banks.”

In its talks with the government, the RBI has said that exempting SWAMIH from AIF rules would require a similar exemption for foreign sovereign funds, the first government source said.

Based on the government’s suggestion, the central bank may consider excluding state funds “on a case-by-case basis,” they said.

(1 dollar = 83.4975 Indian rupees)

(Reporting by Nikunj Ohri and Bhakti Tambe; editing by Janane Venkatraman)