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RBI extends VCF prudential norms to Category I & II AIFs

No longer current — replaced by Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Di
Source: Reserve Bank of India · RBI/2021-22/185 · issued 23 Mar 2022 · ~1 min read
Quick answerRBI has extended the prudential treatment for Venture Capital Funds (VCFs) to Category I and Category II Alternative Investment Funds (AIFs). This circular also clarifies updates to several sections of the Master Direction on investment portfolio classification, valuation, and operations.

What changed

RBI has decided that investments in Category I and Category II AIFs, including VCFs, will now receive the same prudential treatment as VCFs. Additionally, clarifications and updates have been made to specific sections of the Master Direction, including sections 4(a)(vii), 10(c)(ix), 12(ii)(b), 12(ii)(d)(ix), 13(iv)(b), 16(i), 16(ii), 18(ii)(e)(ii), and Annex II.

What it means for you

Banks must now apply the same prudential norms for AIF investments as they do for VCFs, which may affect capital allocation and risk-weighting. The clarifications to various sections provide more precise guidance on classification, valuation, and operational aspects, reducing ambiguity for compliance.

Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.

What banks were required to do at the time

Who it affects

All Commercial Banks (excluding Regional Rural Banks), Investment and treasury departments, Risk management and compliance teams

❓ Common questions

Regulatory timeline

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

Does this circular apply to Regional Rural Banks?

No, the circular explicitly excludes Regional Rural Banks from its applicability.

When do these instructions take effect?

The instructions come into force with immediate effect from the date of the circular, March 23, 2022.

What specific sections of the Master Direction were updated?

Updates were made to sections 4(a)(vii), 10(c)(ix), 12(ii)(b), 12(ii)(d)(ix), 13(iv)(b), 16(i), 16(ii), 18(ii)(e)(ii), and Annex II.

📜 This document’s life story (1 recorded event, each backed by RBI’s own words)
Superseded by Reserve Bank of India (Classification, Valuation and Operation of Investment Por
📜 Read the original circular — full text as issued by RBI
The guidelines have been repealed. Please refer to the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2021 . RBI/2021-22/185 DOR.MRG.REC.96/21.04.141/2021-22 March 23, 2022 Dear Sir / Madam, Master Direction - Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2021 - Amendment Please refer to the Master Direction DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021 – ‘Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2021’ (hereinafter referred as ‘Master Direction’). 2. The Master Direction outlines the prudential treatment for investment in Venture Capital Funds (VCFs). We have received queries from banks regarding the applicability of these instructions for investment in Alternative Investment Funds (AIFs). 3. Accordingly, on a review, it has been decided that the investment in Category I and Category II AlFs, which includes VCFs, shall receive the same prudential treatment as applicable for investment in VCFs. 4. In addition, based on feedback from banks, clarifications / updates have been provided regarding section 4(a)(vii), 10(c)(ix), 12(ii)(b), 12(ii)(d)(ix), 13(iv)(b), 16(i), 16(ii), 18(ii)(e)(ii) and Annex II of the Master Direction. 5. The relevant sections of the Master Direction have been amended to reflect the aforementioned changes. Applicability 6. This circular is applicable to all Commercial Banks (excluding Regional Rural Banks). 7. These instructions shall come into force with immediate effect. Yours faithfully, (Usha Janakiraman) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2021-22/185 · issued 23 Mar 2022. The plain-English explanation above is BankPulse’s own independent summary.
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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12258&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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