Mumbai: lenders has written to reserve Bank of India are looking for truce Some of the clauses are from the recent instructions to prevent evergreening of loans by sending funds to borrowers through Alternative Investment Funds (AIFs).
Evergreening of loans refers to a practice where a lender provides additional funds to a borrower struggling to meet repayment obligations or extends the maturity date of an existing loan. This is done to prevent the loan from being classified as non-performing or in default. In May 2023, the RBI governor had cautioned banks that the regulator had found examples of evergreen recovery of loans.
On December 19, the RBI had barred banks and non-banking financial companies from investing in AIFs linked to borrowing companies. RBI has also asked lenders to liquidate within a month the investments in funds that have invested in the companies of their borrowers. If lenders fail to liquidate such investments, they are required to make full provision on the loan.
One of the representations received by the RBI is that there should be a distinction between funds investing in healthy companies and investments made in funds specifically created to invest in distressed businesses.
For example, the government-backed Swami Investment Fund (Special Window for Affordable and Middle Income Housing) is an AIF designed to invest in stranded housing real estate projects in which banks have invested.
Lenders are also concerned about the 100% provision to be made on investments in AIFs.