AIF Structures Being Used To Circumvent Regulations, Says SEBI's Ananth Narayan

The Securities and Exchange Board of India called out alternative investment funds after finding various cases of them using the structure to circumvent other regulations.

"We have found various cases of AIF structures are being used to circumvent other regulations. They are being used to avoid recognition of non-performing assets by getting fresh funding coming for stressed borrowings," Ananth Narayan Gopalakrishnan, the whole-time director of SEBI, said at the Confederation of Indian Industry's AIF Summit 2023, held in Mumbai on Thursday.

The regulator has also seen sectoral caps breached through AIF routes. "These cases do bother us even when we want the industry to grow," Narayan said.

In AIFs, the actual commitments raised currently are around Rs 8.5 lakh crore, with investments of around Rs 3.5 lakh crore.

SEBI is hopeful for this trend to continue, as its role is not just regulation but also ensuring capital formation, he said.

The regulator does not get the level of data for AIFs that it gets for mutual funds and portfolio management services, he said. "We get aggregate data. It is through our focused inspections and market intelligence is how we noticed these issues over the years."

SEBI has recently issued several circulars related to AIFs, clarifying the standard approach for valuing the investment portfolio and the modalities for launching liquidation schemes. The market regulator also asked AIFs to provide direct plans.

"We try and put a regulation that plugs the gap in this circumvention. SEBI's real intention is to not let the bad things happen and, at the same time, don't come in the way of good things happening."

SEBI has urged the industry association to become SROs or form a quasi-self-regulatory body to self-police these issues and bring them to the regulator's attention.