SBI chairman Khara said the lender’s entire exposure to AIFs is near to Rs 1,000 crore.
Provision for AIF Investments
The State Bank of India (SBI), the country’s largest lender, has set aside a provision of Rs 240 crore on its investments in alternative investment funds (AIFs), according to Chairman Dinesh Khara.
The bank’s total exposure to AIFs stands at approximately Rs 1,000 crore. This move aligns with regulatory guidelines issued by the Reserve Bank of India (RBI) on December 19, 2023.
RBI’s Guidelines on AIF Investments
The RBI directive prohibits banks, non-bank lenders, and home financiers from investing in AIFs that have direct or indirect connections with companies that borrowed from these entities.
The guidelines address regulatory concerns related to certain transactions involving AIFs and emphasize the need for regulated entities to adhere to the specified rules when investing in these funds.
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Impact on Other Lenders
SBI is not alone in making provisions for AIF investments. Other major lenders such as HDFC Bank, Kotak Mahindra Bank, Axis Bank, and more have also taken similar measures.
For instance, Kotak Mahindra Bank has made a provision of Rs 143 crore, and Axis Bank has set aside Rs 182 crore in compliance with the RBI’s guidelines.
Rationale Behind Provisions
The provisions made by these banks are a response to the RBI’s regulatory concerns, particularly related to transactions that involve the substitution of direct loan exposure to borrowers with indirect exposure through investments in AIFs.
These measures aim to align the financial institutions with the guidelines and ensure adherence to regulatory standards.
Quarterly Results Announcement
Chairman Dinesh Khara made the announcement regarding the provision during a press conference post the quarterly results announcement.
The move reflects the bank’s commitment to regulatory compliance and risk management in the context of its investment portfolio.
Broader Impact on the Banking Sector
The provisions made by SBI and other lenders underscore the broader impact of regulatory changes on the banking sector’s investment strategies.
Financial institutions are adjusting their portfolios and making provisions to navigate the evolving regulatory landscape and mitigate potential risks associated with AIF investments.
Future Compliance and Risk Management
As the banking sector navigates the changing regulatory landscape, the provisions made by SBI and other banks serve as indicators of the industry’s commitment to future compliance and robust risk management practices.
Adjustments to investment strategies and proactive measures demonstrate a collective effort to align with regulatory expectations and uphold financial stability.
