The Draft Directions mark a welcome evolution from the prohibitive regime of 2023. By introducing proportionality, excluding hybrid instruments and exempts REs from compliance requirements where their exposure to an AIF scheme is limited to 5%, RBI has made significant attempt to balance systemic concerns with market growth.

For model review, RBI has to ensure that these models are robust and reliable, and they comply with the existing regulatory standards.

RBI’s move comes at a time when AIFs are gaining steam in India, with the primary source of capital being sourced from regulated entities.

RBI’s new-year gift for regulated entities aims to address the critical issue of the rising evergreening of loans through AIFs.