The Emperor’s New Loan: Unmasking Loan Evergreening Through AIFs
Devanshi Singh
(National Law Institute University, Bhopal)
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Abstract
Credit and access to it are quintessential to a rapidly growing economy. However, where regulated modes of raising funds stagnate, borrowers are driven to find workarounds through unconventional parallel financiers. Given that these lenders face a milder set of obligations with a higher degree of autonomy, entities are able to borrow from them continuously and in vast aggregates with little consequences for themselves. These zombie firms are hence kept alive at the cost of permanent pressure on financial institutions. This practice of evergreening has been around for over a decade, but recent crackdowns by the RBI have refocused attention to it. Through a Circular dated 19th December 2023, the RBI sought to limit investments by Regulated Entities in AIFs with links to debtor companies. The author seeks to explore the impact of evergreening and restrictions to it on lenders, borrowers and AIFs along with an endeavour to identify and resolve the root issue, being lack of credit in the economy and a lacking stressed assets management framework.