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Startup funding may face the heat after RBI crackdown on evergreening loans to AIFs

Money Control · 11m

The recent crackdown by the Reserve Bank of India (RBI) on the practice of evergreening loans through Alternative Investment Funds (AIFs) may worsen the already declining trend of startup funding in the country. The RBI's diktat prohibits banks and non-banking financial companies from investing in a venture capital (VC) fund that has also invested in a particular startup that has received loans from the bank or NBFC. This move, intended to prevent the misuse of AIFs for evergreening bad loans, could negatively impact the domestic VC firms that heavily rely on banks as limited partners. The regulation may also deter foreign investors from investing in Indian startups. VC industry representatives have approached the RBI, requesting for more transparency and governance systems instead of a complete stop on investment.