Piramal Enterprises, IIFL Finance Act On AIF Exposure Post RBI Norms
In response to the Reserve Bank of India's (RBI) recent guidelines on lender exposure to Alternative Investment Funds (AIFs), Piramal Enterprises (PEL) and IIFL Finance have officially informed stock exchanges about initiating provisions. This proactive step aligns with the RBI's new regulations concerning the financial sector's involvement with AIFs.
On 22 December at 11:10 am on BSE, PEL's stocks traded at Rs 924.15, marking a 4.77 per cent increase, while IIFL Finance's stocks traded at Rs 568.50, down by 4.55 per cent.
Piramal Enterprises, along with its subsidiaries, disclosed a total AIF exposure of Rs 1,737 crore, complying with the new RBI norms. Notably, the company intends to account for its entire AIF exposure, extending beyond the newly implemented regulations.
"As of 30 November 2023, PEL and Piramal Capital & Housing Finance had investments in AIF units amounting to Rs. 3,817 crores," the company stated officially.
Similarly, IIFL Finance revealed an investment of Rs 21.37 crore in IIFL Fintech Fund and a debt exposure of Rs 3.28 crore linked to one of the fund's downstream investments. The total value of other AIF investments stands at Rs 909.81 crore, excluding any recent downstream investments or exposure within the past 12 months.
Moreover, IIFL Home Finance, a subsidiary, committed Rs 161.07 crore via the 'Priority Distribution Model.' Failing to liquidate this investment would require a 100 per cent deduction from the capital.
The RBI directive prohibits financial institutions from investing in AIFs that have invested in debtor firms where the lenders maintained exposure in the previous 12 months. Banks and NBFCs must divest these investments within 30 days or make full provisions amounting to 100 per cent against them as part of the regulatory revamp.
"However, the subsidiary maintains adequate capitalization with a CRAR of 47.55 per cent as of September 2023, and this deduction will lower the CRAR to 46.39 per cent, showing a marginal impact of 1.16 per cent," IIFL stated in their notification.
According to a Reuters report citing Jefferies, Piramal's AIF exposure accounts for approximately 7 per cent of its assets under management, and provisioning for it could result in a 10 per cent impact on its net worth.
