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This podcast discusses how the Reserve Bank of India is cracking down on the unethical practice of evergreening loans and the role of Alternative Investment Funds (AIFs) in saving struggling businesses. It also delves into the regulations issued by the RBI for Non-Banking Financial Companies (NBFCs) regarding their dealings with AIFs.
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- The Reserve Bank of India is cracking down on the practice of evergreening, where NBFCs collaborate with AIFs to extend loan terms and avoid classifying loans as NPAs.
- The RBI's regulations may result in increased expenses, impact credit ratings and stock prices of NBFCs, and pose challenges for AIFs in raising funds.
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RBI Cracks Down on Evergreening Practice
The Reserve Bank of India (RBI) is taking a strong stance against the practice of evergreening, which occurs when non-banking financial companies (NBFCs) try to avoid classifying loans as non-performing assets (NPAs). In evergreening, an NBFC collaborates with an alternative investment fund (AIF) to extend the term of a loan to a struggling borrower. By using the AIF's funds to buy bonds issued by the borrower, the NBFC can claim that the loan has been repaid within the 90-day deadline set by the RBI, thereby avoiding the NPA classification. However, the RBI believes that this practice can mask problems in NBFCs and has issued new regulations to curb it.
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