Regulatory updates

Regulatory updates

Updates from RBI

Back

In August 2021, Reserve Bank of India (RBI) issued Master Directions for Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2021 (Master Directions). The Master Directions outlined the prudential treatment for investment in Venture Capital Funds (VCFs).

RBI received various queries from banks regarding the applicability of the prudential treatment for investment in Alternative Investment Funds (AIFs).

Based on a review conducted by RBI, it has been decided that the investment in Category I and Category II AlFs8 shall receive the same prudential treatment as applicable for investment in VCFs.

These amendments are applicable to all commercial banks (excluding Regional Rural Banks), and will be effective from 23 March 2022.

  1. Category I AIF invests in start-up or early-stage ventures, social ventures, SMEs, infrastructure and other sectors or areas which the government or regulators consider as socially or economically desirable.
    Category II AIF includes funds which do not fall in Category I and III funds and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (AIF) regulations.

To access the text of RBI notification, please click here

Action points for auditors

  • Post these amendments, investments in unquoted shares/bonds/units of Category I and II AIFs (investments in AIFs) for an initial period of three years will be eligible to be included in ‘Held-to-Maturity’ (HTM) category. Further investments in AIFs will be marked to market on a periodical basis, and specific valuation requirements of investments when they are transferred from HTM to ‘Available for Sale’ (AFS) category will also apply. Auditors should note these amendments to valuation norms, as they would be applicable to audits for the period ended 31 March 2022.
  • For ensuring proper compliance with the instructions (including the valuation of investments, and reporting of the same in the financial statements) with regard to an investment portfolio, banks must ensure that an adequate system of internal controls has been put in place. The banks should also institute a regular system of monitoring compliance with the prudential and other guidelines issued by the RBI and get compliance in key areas certified by the statutory auditors. Additionally, auditors would need to report on the internal controls put in place for financial reporting, and thus evaluate these controls instituted by the management

Our Insights

Tools and Enablers
Resources
Events and Webinars
Sectoral Insights

Reach out to us

;