AIFs are required to avoid facilitating ever-greening of stressed loans or assets for RBI-regulated entities, adhering to RBI's norms for income recognition, asset classification, provisioning and restructuring.

On October 8, 2024, the Securities and Exchange Board of India (SEBI) issued a circular regarding specific due diligence requirements for Alternative Investment Funds (AIFs) and their managers. The circular,

Both the Reserve Bank of India and SEBI have expressed concerns over instances of AIFs being used to “evergreen” bad loans. The RBI has also publicly warned against the practice, which refers to new loans given to stressed borrowers to enable them to repay existing loans.

SEBI aims to strengthen due diligence processes among AIF managers and protect the interests of eligible investors.

SEBI has issued a circular in which it has asked AIFs to do specific due diligence of certain investors to prevent any violation of laws. The standards for the due diligence will be set by Standard Setting Forum for AIFs (SFA). The investors specified by the circular are as under:

Under this, AIFs designated as Qualified Institutional Buyers (QIBs) or Qualified Buyers (QBs) must ensure that investors who are not eligible for QIB or QB status on their own do not avail of the respective benefits through the AIF.

Due diligence has been mandated for schemes where investors from the same group contribute 50 per cent or more to the corpus before availing the benefits of QIB status

Sebi has directed Alternative Investment Funds (AIFs) and their managers to conduct specific due diligence on investors and investments to prevent regulatory circumvention. The guidelines include checks on investor eligibility,