Navigating the Golden Goose: Sebi's Stance on AIF Investments

Sebi's whole-time member Ananth Narayan addresses issues of regulatory circumvention in AIF investments, emphasizing the need for stricter yet flexible regulations to ensure sustainability without stifling the industry. He also advocates for adopting accredited investor models to enhance transparency and accountability.

On Tuesday, Ananth Narayan, a whole-time member of Sebi, highlighted concerns over a significant portion of Alternative Investment Funds (AIFs) being structured to bypass existing financial regulations. This circumvention targets rules on issues like non-performing assets (NPAs) and bankruptcy laws, overshadowing the legitimate efforts of the industry.

In a consultation paper from January, Sebi estimated that such circumventions might involve Rs 30,000 crore. The Reserve Bank of India, responding to these concerns, has mandated higher provisioning for AIF investments by banks. Despite industry calls for lighter regulations, Narayan emphasized the need for structured frameworks to prevent regulatory circumvention.

Narayan advocated for the adoption of accredited investor models, already a global standard, to offer more flexibility while ensuring investor awareness. He also urged for independent valuations of unlisted securities and suggested registering fund managers to ease regulatory processes akin to foreign portfolio investor frameworks. These measures aim to maintain a sustainable investment environment without impeding growth.

(With inputs from agencies.)