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Business News/ Industry / Banking/  Piramal Enterprises, IIFL Finance initiate provisions for AIF exposure after RBI tightens norms
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Piramal Enterprises, IIFL Finance initiate provisions for AIF exposure after RBI tightens norms

The announcements by PEL and IIFL Finance come as a proactive measure to align with the RBI’s newly instituted norms governing the financial sector’s involvement in AIFs.

Piramal Enterprises (PEL) and IIFL Finance have declared their intention to create provisions in accordance with the recent guidelines set by the Reserve Bank of India (RBI) regarding lenders' exposure to Alternative Investment Funds (AIFs). Premium
Piramal Enterprises (PEL) and IIFL Finance have declared their intention to create provisions in accordance with the recent guidelines set by the Reserve Bank of India (RBI) regarding lenders' exposure to Alternative Investment Funds (AIFs).

In response to the recent regulatory directives from the Reserve Bank of India (RBI) concerning lenders’ exposure to Alternative Investment Funds (AIFs), Piramal Enterprises Ltd (PEL) and IIFL Finance have officially communicated to the stock exchanges that they have initiated the process of making provisions. The announcements by PEL and IIFL Finance come as a proactive measure to align with the RBI’s newly instituted norms governing the financial sector’s involvement in AIFs.

The stocks of PEL was trading in green at 924.15, up 4.77 per cent, and the stocks of IIFL Finance was trading in red at 568.50, down 4.55 per cent, on December 22 at 11:10 am, on BSE.

Piramal Enterprises, accompanied by its subsidiaries, announced a comprehensive AIF exposure totalling 1,737 crore in compliance with the new RBI norms. Notably, the company emphasised its intention to account for its entire AIF exposure, even beyond the ambit of the recently implemented regulations.

“As of November 30, 2023, the value of investments by PEL and Piramal Capital & Housing Finance Limited in AIF units was Rs. 3,817 crores," the company announced in an official statement.

Similarly, IIFL Finance has disclosed a combined investment of 21.37 crore in IIFL Fintech Fund, along with an outstanding debt exposure of 3.28 crore linked to one of the fund’s downstream investments. Notably, the total value of other Alternative Investment Fund (AIF) investments amounts to 909.81 crore, excluding any downstream investments or exposure acquired in the preceding 12 months.

Additionally, IIFL Home Finance, a subsidiary, has committed an investment of 161.07 crore through the ‘Priority Distribution Model.’ Failure to liquidate this investment would necessitate a 100% deduction from the capital.

The central bank’s directive prohibits financial institutions from investing in AIFs that have, in turn, invested in debtor firms with which the lenders maintained exposure in the preceding 12 months. Furthermore, banks and NBFCs are mandated to either divest these investments within a 30-day window or make complete provisions amounting to 100% against them as part of the regulatory overhaul.

“However, the subsidiary is adequately capitalised, having a CRAR of 47.55 per cent as of September 2023, and the impact of this deduction shall reduce the CRAR to 46.39 per cent, reflecting a marginal impact of 1.16 per cent," IIFL said in the notification.

Jefferies estimated Piramal’s AIF exposure to be 7 per cent of its assets under management and said provisioning for it could lead to a 10 per cent hit to its net worth, according to a report by Reuters.

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Published: 22 Dec 2023, 12:00 PM IST
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