Government wants exemption for sovereign wealth funds from RBI’s AIF rules: official

A fund official confirmed the government’s communication with the central bank, but gave no further details. They requested anonymity because they are not authorized to speak to the media. Photo: Shutterstock

The Indian government has asked the central bank to exempt sovereign wealth funds from a recent set of 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 companies to make provision for investments in AIFs – which also include sovereign wealth funds – if they were also lenders to the projects in which the AIFs invested.

The rules, which had been tightened to prevent evergreening of loans, were partially relaxed later in March.

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

A fund official confirmed the government’s communication with the central bank, but gave no further details. They requested anonymity because they are not authorized to speak to the media.

The RBI and the finance ministry did not immediately respond to Reuters emails seeking comment.

Established in 2019 to provide debt financing for stalled housing projects, SWAMIH is managed by SBICAP Ventures, a wholly owned subsidiary of the government-owned State Bank of India.

SBI is also a major investor in the fund.

The bank has made provisions of Rs 120 crore ($14.37 million) for its AIF investments in the year ended March 31, 2024.

SBICAP Ventures did not immediately respond to Reuters emails.

These regulations could make banks reluctant to invest in SWAMIH because the banks would have exposure to projects the fund is trying to rescue, the first government source said.

The RBI regulations “could lead to higher provisioning by banks”, she added.

In discussions with the government, the RBI has made it clear that exempting SWAMIH from AIF regulations would require a similar dispensation for foreign sovereign wealth funds, the first government source said.

Based on the government’s suggestion, the central bank could consider exempting sovereign wealth funds “on a case-by-case basis”, they said.

First print: June 20, 2024 | 1:52 p.m IST