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.
What you must do
- Review and update internal policies to apply VCF prudential treatment to all Category I and II AIF investments.
- Ensure compliance with the amended sections of the Master Direction, particularly those clarified in this circular.
- Train relevant staff on the updated classification and valuation norms for AIFs and VCFs.
- Monitor investment portfolios to align with the immediate effective date of these instructions.
Who it affects
All Commercial Banks (excluding Regional Rural Banks), Investment and treasury departments, Risk management and compliance teams
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.