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The Securities and Exchange Board of India (SEBI) has informed the Reserve Bank of India (RBI) about instances of non-bank lenders evergreening loans by using alternative investment funds (AIFs), two people with direct knowledge of the matter said.
“Sebi, during the course of its examination, found at least two NBFCs (Non-banking financial companies) and two AIFs indulging in the practice of ‘evergreening’ through the AIF route. We told some industry players to stop this misuse, but it has continued. Which is why Sebi has stopped AIFs working on ‘priority distribution’ from accepting new mandates till the regulators have a solution," an official, one of the two people cited above said, seeking anonymity.
Some lenders use the evergreening of loans to mask loan defaults and show inflated earnings. To avoid providing cash to cover loan losses, lenders offer fresh loans to borrowers on the verge of default to ensure they repay an old loan.
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