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The Reserve Bank of India has now allowed banks to invest in the capital of Category II Alternative Investment Funds, which includes private equity and venture debt funds. It had earlier allowed banks to invest in the paid-up or unit capital of Category I AIFs, which include venture capital funds and social venture funds.
In a circular issued on Monday, RBI has amended an earlier order issued in May 2016, permitting this investment and has maintained the cap at 10 per cent of the capital of VC, PE and venture debt funds. It has, however, continued with the bar on banks investing in Category III AIFs, which include hedge funds.
The latest RBI circular is part of a series of measures being taken by various regulators, including SEBI, IRDA and CBDT to ensure uniformity of regulations of the venture capital and private equity industry and making them contemporary.
The RBI’s circular on Monday follows a series of discussions the venture capital and private equity industry has had with the central bank, through the Indian Venture Capital Association.
Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds, and Chairman, Indian Venture Capital Association, welcomed the open attitude of and interaction and coordination among various regulators, especially SEBI and RBI, which were also willing to listen to industry voices and do the needful to make the regulations uniform and contemporary.
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