Plug loopholes in alternative investment funds regulations: RBI to Sebi

The Reserve Bank of India (RBI) wrote to the Securities and Exchange Board of India (Sebi) to plug loopholes in alternative investment funds (AIFs) regulations that are being exploited by the funds to give corporate loans. According to sources, the banking regulator is concerned about the risks posed by such practices and fears the route could also be used for money laundering.
It is worthwhile to note that all the lending businesses in India are regulated by the RBI.

The issue came to light during the market regulator’s investigation against Srei Alternatives, a category-II AIF.

In 2015, the fund had given out loans to seven entities, including Essar Steel, Essar Shipping and Loop Telecom. Sebi’s adjudication investigated four violations at Srei Alternatives.
The regulator had not imposed any penalty on Srei AIF for issuing loans as there was a regulatory loophole