On December 19, 2023, the Reserve Bank of India (“RBI”) issued a circular (“Original Circular”) on investment in AIFs to address regulatory concerns w.r.t. investments made by banks, financial institutions, nonbanking financial companies (“Regulated Entities”/“REs”) in units of AIFs, during its regular investment operations. In order to address concerns on the possible evergreening through AIF route, the Original Circular aimed at clarifying that REs shall not invest in any scheme of AIF which has downstream investments either directly or indirectly in a debtor company of RE, and accordingly introduced further clarifications. However, many businesses in the industry raised concerns regarding difficulties in implementation of the Original Circular. Resultantly, some RE’s felt compelled to sell their interests in AIFs prematurely.