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It’s the Final Countdown Achievements by and Expectations of the AIF Industry

Morning Mumbai mist, hot coffee and the 1986 song ‘The Final Countdown’ by Europe is playing in the background – life seems blissful! And it was mostly so for the Alternative Investment Funds (AIFs) industry. As we begin the run-up to Budget 2018, we look back at the milestones crossed in 2017 and the goalposts set for 2018 – and we focus on the key hits, misses and asks of the AIF industry.

2017: Key Highlights 

  • Investment by Banks in Category II AIFs: The Reserve Bank of India (RBI) amended the Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 permitting banks to invest in Category II AIFs up to a maximum cap of 10% corpus of such AIF. With Category II AIFs constituting nearly 50% of the total number of AIFs registered with the Securities and Exchange Board of India (SEBI), this amendment sets the roadmap for channeling domestic savings into productive alternate assets and, at the same time, provides banks with the ability to earn a risk-adjusted return, thereby boosting the overall Return on Equity for its stakeholders.

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Continue Reading It’s the Final Countdown: Achievements by and Expectations of the AIF Industry

One Size Fits All Regulating Peer-To-Peer Lending Platforms

Technological innovation is the new normal in the financial services sector. The evolution of every aspect of this industry in the past few years has been truly transformational, whether it is access to funds, demand creation/aggregation or even payment systems. The inception and growth of peer-to-peer (P2P) lending platforms in India is one such example. P2P platforms effectively function as an online marketplace for lenders and borrowers, for a commission. A need for regulatory oversight was considered by the Reserve Bank of India (RBI), given the recent rise in the number of such operators and their integration into the financial services sector.

The RBI outlined its proposal to regulate such platforms in its consultation paper issued last year. Following notification on August 24, 2017 categorising P2P lending platforms as Non-Banking Financial Companies (NBFCs), the RBI has finally issued its widely anticipated master directions on October 04, 2017 (Master Directions).…

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It’s a Yes – for Banks!

The RBI has amended the Master Directions on Financial Services provided by Banks. This is a significant move permitting Banks to invest in Category II Alternative Investment Funds.

As of June 30, 2017, Alternative Investment Funds (AIFs) had raised the cumulative figure of Rs. 48, 129 crores, against aggregate capital commitments of Rs 96,000 crores. The AIF industry is thus growing at an exponential rate, raising monies from domestic and offshore investors.

Unfortunately, however, the Indian AIF industry, lags behind its western counterparts in terms of participation by domestic pools of capital. In western countries, long term or patient capital, such as pension funds, contributes nearly 40% of the capital raised by AIFs. In the Indian context, restrictions prescribed by sector regulators have inhibited fund managers from raising capital from the domestic financial services sector.

Hence, it was no surprise that one of the key themes in the 2016 reports of the Alternative Investment Policy Advisory Committee (AIPAC), chaired by Mr Narayan Murthy, was “unlocking domestic pools of capital”. The committee’s recommendation was premised on the argument that the domestic capital pools – pensions, insurance, domestic financial institutions, banks, and charitable institutions – need access to appropriate investment opportunities to earn risk-adjusted returns.…

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Rupee

The Indian banking system has been riddled with non performing assets (NPAs) for some time now. To help lenders, the Reserve Bank of India (RBI) has introduced a variety of debt restructuring policies, including the flexible structuring of project loans  and the strategic debt restructuring scheme. But these schemes have met with limited success, mostly due to the lack of funds available for promoters to invest, non-cooperation on the part of the borrowers and the sub-optimal levels of operations in the relevant companies.

The lukewarm economic environment has further amplified these woes. As such, ‘bad’ loans across 40 listed banks in India had increased to Rs. 5.8 trillion (approximately USD 85.9 billion) in March 2016 from Rs. 4.38 trillion (approximately USD 64.9 billion) in December 2015. Estimates show that weak assets in the Indian banking system will reach Rs. 8 trillion (approximately USD 118.5 billion) by March 2017.…

Continue Reading Dealing with Stressed Assets in India – S4A, A Fresh Perspective