Financial Services Stocks Rise After RBI Modifies AIF Regulations For Lenders

Shares of most financial services companies rose on Thursday and led the rally in the benchmarks after the Reserve Bank of India modified its alternative-investment-fund regulations for lenders.

The RBI's circular clarifies that lenders only need to provide for the extent of investment in the AIF, which is further invested in the debtor company, and not the entire investment.

Following this, the Nifty Financial Services and Nifty Bank jumped over 1%. The Nifty Bank hit its highest level since March 13 and the Nifty Financial Services hit an over two-month high.

Shares of Bajaj Finance Ltd. and Bajaj Finserv Ltd. rose the most during the day and hit their highest levels in more than a month. Those of Piramal Enterprises Ltd. also rose over 2%, whereas IIFL Finance Ltd. traded lower.

In December, the RBI had restricted banks and NBFCs from investing in the AIFs, which have downstream investments in debtor companies. The move was aimed at controlling evergreening of loans through the AIF investment route.

The central bank clarified that provisions for downstream exposure to debtor companies, where AIF is invested, have to come from tier-1 and tier-2 capital equally.

The AIF investments by lenders through intermediaries such as fund of funds or mutual funds are excluded from the aforementioned restrictions, the RBI said.