Amid few options for existing investments and the hope of some easing in guidelines by the regulator, most private banks made provisions against their investments in alternative investment funds (AIFs) during the quarter ended December 2023.

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In October-December, five private banks made provisions of ₹2,334 crore against their AIF portfolios, leading with HDFC Bank, which had the maximum provisions of ₹1,220 crore, and ICICI Bank, with provisions of ₹627 crore.

In the earnings call, HDFC Bank CFO Srinivasan Vaidyanathan said that the fair value of the investments was about ₹500 crore higher, which reflects that there is good value in the assets, but the bank has chosen to make 100 per cent provisioning on a prudent basis. He added that if the RBI makes any concessions in the future, the bank will accordingly take a call. I

ICICI Bank said that it has not.

RBI’s caution

The RBI had, on December 19, asked lenders not to invest in AIFs that have direct or indirect downstream investments in companies that were borrowers in the last 12 months. Further, such existing investments were required to be liquidated in 30 days or fully provided for.

AIF investments are usually long-term in nature. With AIFs turning down redemption requests due to their inability to sell off investments at short notice, lenders have been left with little option but to provide for these portfolios. As of the deadline of January 19, 2024, AIFs had seen minimal redemptions, as per industry sources.

Detailing its total exposure at ₹207 crore, Axis Bank said that of this, 46 per cent was in government-owned or sponsored entities, and the bank did not have exposure of over ₹50 crore in any fund. Further, 85 per cent of the portfolio that overlaps with the RBI circular includes ‘A-’ and above-rated companies.

RBL Bank MD and CEO R Subramaniakumar said that a bulk of the investments are in venture debt funds, which have been made over years for building inroads into new-age digital businesses. The bank made provisions of ₹115 crore.

IndusInd Bank said that it has an overall exposure of about ₹113 crore in AIFs. However, the bank is exploring selling them down and seeing enough demand, which is why it chose not to make additional provisions during the quarter.

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While Federal Bank has no exposure to AIFs, MD and CEO Shyam Srinivasan said that banks have made a representation to the regulators, who might look at exposure differently for various banks. Reports suggest that the central bank is considering some relaxations in norms sought by banks, including allowing investments in stressed asset funds, which may include banks’ existing borrowers.