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The Reserve Bank of India (RBI) on Monday barred banks from investing in category III alternative investment funds (AIFs), specified norms for their participation in commodity derivatives clearing, and tweaked rules on investing in financial services firms.
Banks may invest as much as 10% in the paid-up capital/unit capital in category I and II funds but cannot invest in category III funds. So far, there was no specific rule on investing in AIFs.
“No bank shall (make) investment of more than 10% of the paid-up capital/unit capital in a category I/ category II alternative investment fund,” said an updated master circular on financial services offered by banks.
Category III AIFs employ complex trading strategies sometimes on borrowed money, while category ii funds do not use leverage other than to meet daily requirements. Category I AIFs invest in start-up ventures, SMEs and other sectors preferred by the government or regulators.
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