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RBI googly on adherence to new Press Note 3 norms puts AIFs in a bind

RBI googly on adherence to new Press Note 3 norms puts AIFs in a bind

The Reserve Bank of India (RBI) has tapped a number of alternative investment funds (AIFs), to ascertain if their recent transactions were in accordance with the new Press Note 3 (PN3) requirements, said two people familiar with the matter.

AIFs receiving foreign investment need to submit Form InVi within 30 days from the date of issue of units, to the apex bank. The RBI has been rejecting such forms of late, seeking a declaration that these transactions are in compliance with the recent notification.

This has raised concerns that the ambit of PN3 — applicable only to foreign direct investments (FDI) so far — could extend to AIFs (both domestic and foreign) too, and thus prevent funds from drawing down capital from Chinese limited partners (LPs) for follow-on or fresh investments.

Since AIFs draw their capital over 3-5 years, finding new investors could be a challenge and Chinese LPs could withdraw from future investments. “It is not clear if the RBI is looking at a simple declaration from AIFs or if it actually wants to scan the beneficial ownership information to determine if the fund needs to go through the approval route,” said Atul Pandey, corporate and M&A partner, Khaitan & Co.

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