Understanding Key Amendments - April 2026
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Updated: 5 hours ago
SECURITIES EXCHANGE BOARD OF INDIA
Flexibility in Winding Up and Inoperative Fund Framework
On March 23, 2026, the Securities and Exchange Board of India (“SEBI”) amended the SEBI (Alternative Investment Funds) Regulations, 2012 providing greater flexibility to Alternative Investment Funds (“AIFs”) in relation to winding up of schemes and surrender of registration. The amendments ameliorate AIFs which are unable to complete liquidation and surrender registration due to pending tax liabilities, litigation claims, or residual operational expenses.
The amended framework also introduces the concept of “Inoperative Funds”, under which AIFs with no active fund management activity may be subject to lighter compliance obligations until they surrender their registration certificate.
Key Highlights
Retention of Liquidation Proceeds Permitted: AIFs may retain liquidation proceeds beyond the permissible fund life for grounds, inter alia specified hereinafter, instead of being required to distribute all proceeds and maintain zero bank account balance before surrendering registration.
Litigation or Regulatory Demands: Such retention of funds is permitted where an AIF has received a litigation notice, tax demand, regulatory demand, show-cause notice, reassessment notice, or any similar official written communication.
Investor Consent Route: AIFs may also retain funds where at least 75% (Seventy Five Percent) of investors by value consent to retention for meeting anticipated liabilities arising from litigation or tax demands.
Operational Expense Retention: AIFs may retain amounts for residual operational expenses if such amounts are substantiated through invoices or prior-year comparable expenses.
Maximum Retention Period: Amounts retained for operational expenses may only be held for a maximum period of 3 (three) years from the end of the permissible fund life.
Inoperative Fund Tagging: AIFs intending to surrender their registration but having one or more schemes with retained proceeds may be designated as “Inoperative Funds”.
Reduced Compliance Burden: Inoperative Funds will be subject to lighter compliance obligations relative to active AIFs, inter alia:
The Discontinuation of Certain Filings: Inoperative funds will neither be required to continue periodic regulatory filings nor update their Private Placement Memoranda(“PPM”)or performance benchmarking requirements.
Continued Regulatory Oversight: Despite the lighter compliance framework, such AIFs will continue to remain under the SEBI’s regulatory supervision until surrender of registration.
Consultative Process: The proposals were deliberated by the Alternative Investment Policy Advisory Committee (“AIPAC”) on January 7, 2026 and were subsequently released for public consultation on February 5, 2026 before final approval by the SEBI.
The amendments are aimed at reducing unnecessary compliance costs and administrative burdens for AIFs that have effectively ceased active operations but remain registered due to unresolved liabilities or pending expenses. By allowing retention of limited funds and introducing an Inoperative Fund category, SEBI has adopted a pragmatic approach that balances operational flexibility with regulatory oversight. The framework is likely to particularly benefit closed-ended AIFs nearing the end of their lifecycle, which may otherwise face prolonged compliance obligations despite having no ongoing investment activity.
SEBI Framework for Net Settlement of Funds for Foreign Portfolio Investors, 2026
On March 23, 2026, the Securities and Exchange Board of India approved a proposal to permit net settlement of funds for transactions undertaken by Foreign Portfolio Investors (“FPIs”) in the cash market. The measure has been introduced as an ease of doing business initiative to reduce transaction costs, improve operational efficiency, and address funding challenges faced by FPIs.
Under the current framework, FPIs are required to settle transactions with custodians on a gross basis, which often results in additional funding requirements and foreign exchange conversion costs. The new framework permits net settlement of funds for certain outright transactions in the cash market while retaining gross settlement of securities.
Key Highlights
Net Settlement Permitted for Cash Market Transactions: FPIs will be allowed to settle funds on a net basis for outright transactions undertaken in the cash market.
Applicability Limited to Outright Transactions: The net settlement facility will apply only where there is either a purchase transaction or a sale transaction in a security during a settlement cycle, but not both in the same security.
Securities Settlement to Remain on Gross Basis: Settlement of securities between the FPI and custodian will continue to be carried out on a gross basis.
STT and Stamp Duty Unaffected: Securities Transaction Tax (“STT”) and stamp duty will continue to be levied on a delivery basis, as applicable under the existing framework.
Reduction in Funding Requirement: FPIs will no longer be required to separately fund purchase obligations where equivalent sale proceeds are available in the same settlement cycle.
Operational Efficiency: The measure is expected to improve operational efficiency by reducing the need for temporary funding arrangements and lowering foreign exchange conversion costs.
Benefit During Index Rebalancing: The proposal is expected to be particularly beneficial on index rebalancing days, when FPIs often undertake simultaneous purchases and sales of different securities.
Illustrative Impact: For example, where an FPI purchases one stock worth INR100,00,00,000 (Indian Rupees One Hundred Crores) and simultaneously sells another stock worth INR 100,00,00,000 (Indian Rupees One Hundred Crores), the purchase obligation may be adjusted against the sale proceeds, eliminating the need for separate pay-in of INR100,00,00,000 (Indian Rupees One Hundred Crores)..
Non-Outright Transactions Excluded: Transactions that are not outright in nature will continue to be confirmed and settled on a gross basis.
Reduced Concerns Around Speculative Activity: Since only outright transactions are covered and securities settlement remains gross, the framework is not expected to significantly increase risks relating to market influence or speculative trading activity.
Implementation Timeline: The framework is required to be implemented on or before December 31, 2026 to allow time for system and process changes.
The proposal is expected to reduce funding costs and improve liquidity management for FPIs operating in the Indian securities market. By allowing fund obligations to be netted off in appropriate cases, SEBI has sought to align settlement practices more closely with global standards while retaining safeguards through gross settlement of securities. The measure is likely to particularly benefit large institutional investors and passive funds during periods of significant portfolio rebalancing.
SEBI (Infrastructure Investment Trusts) and SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2026
On March 23, 2026, the Securities and Exchange Board of India approved amendments to the SEBI (Infrastructure Investment Trusts (“InvIT”)) Regulations, 2014 and the SEBI (Real Estate Investment Trusts (“REIT”)) Regulations, 2014 to improve ease of doing business for InvITs and REITs. The changes are aimed at addressing practical and operational issues relating to asset holding structures, investment flexibility, temporary deployment of funds, and borrowing limits.
The proposals were based on the recommendations of SEBI’s Hybrid Securities Advisory Committee and followed a public consultation process initiated on February 5, 2026.
Key Highlights
Continuation of SPV Holdings after Concession Period: InvITs will be permitted to continue holding investments in Special Purpose Vehicles (“SPVs”) even after the completion or termination of the concession agreement for the underlying infrastructure project.
Reasons for Extended Holding: InvITs may continue to hold such SPVs where immediate exit is not feasible due to pending claims, litigation, tax assessments, defect liability periods, or similar unresolved issues.
One-Year Timeline for Exit or Reinvestment: InvITs will be required to either exit the SPV or acquire a new infrastructure project in the same SPV within one year from the later of completion of the concession agreement, conclusion of pending litigation or claims, or expiry of the defect liability period.
Regulatory Approval Exclusion: Time required for obtaining statutory or regulatory approvals for exit from the SPV will be excluded while calculating the one-year timeline.
Disclosure Requirements: InvITs will be required to make adequate disclosures in their annual reports regarding continued investment in such SPVs.
Expanded Mutual Fund Investment Options: InvITs and REITs will now be permitted to temporarily deploy surplus funds in units of liquid mutual fund schemes with a credit risk value of at least 10 and classified as Class A-I or Class B-I under SEBI’s potential risk class matrix.
Broader Eligible Debt Instruments: The revised investment norms permit exposure to liquid mutual fund schemes holding debt securities rated AA and above, whereas earlier investment was largely restricted to schemes investing in AAA-rated and government-backed instruments.
Greenfield Investment by Privately Listed InvITs: Privately listed InvITs will now be allowed to invest up to 10% (Ten Percent) of the value of their assets in greenfield infrastructure projects.
Access to Under-Construction Projects: The amendment permits privately listed InvITs to invest in under-construction infrastructure projects, including PPP greenfield infrastructure projects, which were previously restricted.
Additional Borrowing Flexibility: InvITs with leverage exceeding 49% (Forty Nine Percent) and up to 70% (Seventy Percent) of the value of their assets will be permitted to undertake fresh borrowings for capital expenditure, major maintenance expenses for road projects, and refinancing of existing debt.
Restriction on Refinancing: In the case of refinancing, only the principal portion of the existing debt originally used for permitted purposes may be refinanced.
Existing Borrowing Restriction Relaxed: Previously, InvITs with leverage between 49% (Forty Nine Percent) and 70% (Seventy Percent) could only undertake fresh borrowings for acquisition or development of infrastructure projects.
The amendments are intended to provide greater operational flexibility to InvITs and REITs, particularly in managing legacy SPVs, deploying surplus funds, and financing infrastructure projects. By broadening permissible investments and easing borrowing constraints, SEBI has sought to improve the efficiency and attractiveness of InvIT and REIT structures. The changes are likely to benefit both listed and privately placed InvITs by allowing more practical management of project lifecycle issues and capital requirements.
RESERVE BANK OF INDIA
Capital Market Exposures (Amendment) Directions, 2026
On March 30, 2026, the Reserve Bank of India (“RBI”) deferred the implementation of the Capital Market Exposures (Amendment) Directions, 2026 by three months, extending the effective date from April 1, 2026 to July 1, 2026. The Amendment Directions were originally issued on February 13, 2026 after public consultation and were intended to provide an enabling framework for acquisition finance by Indian corporates, rationalize lending limits against financial assets, and establish a more principle-based framework for lending to Capital Market Intermediaries (“CMIs”).
The RBI stated that it had received representations from banks, CMIs, and industry associations seeking additional time due to operational and interpretational issues. Alongside the deferment, the RBI also issued clarifications to certain provisions relating to acquisition finance, lending against financial assets, and credit facilities to CMIs.
Key Highlights
Extended Effective Date: The implementation of the Amendment Directions has been deferred from April 1, 2026 to July 1, 2026.
Acquisition Finance Expanded: The definition of acquisition finance has been broadened to include mergers and amalgamations.
Restriction to Non-Financial Targets: Acquisition finance may only be extended for acquiring control over a non-financial target company.
Holding Company Criteria: Where the target company is a holding or parent company controlling subsidiaries, the ‘potential synergy’ requirement must be assessed collectively across the group.
On-Lending by Acquiring Company: Acquiring companies may avail acquisition finance for on-lending to an Indian or overseas subsidiary for the acquisition of a target company.
Refinancing Conditions: Refinance of acquisition finance will be permitted only after the acquisition has been completed in all respects and control of the target company has been established. Such refinancing must be used solely to retire the acquisition finance debt.
Corporate Guarantee Requirement: Where acquisition finance is extended to a subsidiary or SPV of the acquiring company, a corporate guarantee from the acquiring company will be required.
Caps on Loans Against Securities: Loans to individuals against eligible securities have been capped at INR1,00,00,000 (Indian Rupees One Crore) per individual at the banking system level.
IPO/FPO/ESOP Funding Limit: Lending to individuals for subscribing to shares under Initial Public Offerings (“IPO’s), Follow On Public Offers (FPO’s), or Employees’ Stock Ownership Plans (ESOP’s) has been capped at INR25,00,000 (Indian Rupees Twenty Five Lakhs) per individual at the banking system level.
Financing to CMIs for Proprietary Trading: Banks may now finance CMIs for proprietary trading against 100% (One Hundred Percent) collateral comprising cash or cash equivalents.
Market Maker Financing Relaxation: The prohibition on extending finance to market makers against the securities in which they undertake market-making operations has been removed.
Exclusion from CME Computation: Intraday facilities extended to non-debt mutual funds, secured by same-day guaranteed receivables arising from maturity proceeds of government securities, treasury bills, SDLs, interest on G-Secs and SDLs, or maturity proceeds of TREPS from CCIL, will not be treated as Capital Market Exposure (“CME”).
The deferment provides temporary relief to banks and capital market intermediaries by allowing additional time to align internal systems and lending structures with the revised framework. The clarifications issued by the RBI also address several practical concerns around acquisition finance, especially in relation to group structures, overseas subsidiaries, and refinancing. At the same time, the new caps on loans against securities and IPO-related financing indicate a continued regulatory focus on limiting excessive leverage and speculative exposure within the financial system.
Customer Protection in Unauthorized Electronic Banking Transactions (Draft Amendment) Directions, 2026
On March 6, 2026, the RBI released draft amendments to strengthen customer protection in unauthorized electronic banking transactions. The proposed framework is part of the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Third Amendment Directions, 2026 and is intended to address the increasing incidence of digital fraud arising from the rapid growth of UPI, mobile banking, card payments, and internet banking transactions.
The proposed framework introduces a compensation mechanism for small-value fraudulent electronic transactions, while also clarifying the allocation of liability between customers, banks, merchants, and the broader banking system. The revised directions are proposed to come into effect from July 1, 2026.
Key Highlights
Compensation for Small-Value Frauds: Customers who suffer losses of up to INR50,000 (Indian Rupees Fifty Thousand) due to fraudulent electronic banking transactions may be eligible for compensation. Compensation will be 85% (Eighty Five Percent) of the net loss or INR25,000 (Indian Rupees Twenty Five Thousand) whichever is lower.
One-Time Lifetime Benefit: The compensation benefit can be availed only once during a customer’s lifetime.
Reporting Timeline: Customers must report the fraudulent transaction within 5 (five) days through the National Cyber Crime Reporting Portal, the cybercrime helpline 1930, and to their bank in order to be eligible for compensation.
Zero Liability in Certain Cases: Customers will continue to enjoy zero liability where the unauthorized transaction occurs due to bank negligence, system failure, third-party breach, or where the customer promptly reports the fraud without any contributory negligence.
Customer Negligence May Limit Relief: Cases involving customer negligence, such as voluntarily sharing passwords, OTPs, PINs, or other confidential credentials, may reduce or eliminate compensation, depending on the facts. However, limited compensation may still be available in certain small-value fraud cases.
Shared Liability Model: The proposed framework envisages a shared allocation of fraud-related losses among customers, banks, merchants, and a pooled industry fund, especially where responsibility cannot be clearly attributed to one party alone.
Burden of Proof on Banks: Banks will generally bear the burden of proving customer liability in disputed cases involving unauthorized electronic transactions.
Faster Complaint Resolution: The proposed directions seek to shorten complaint resolution timelines and improve grievance redressal processes for customers affected by cyber fraud.
Strengthened Fraud Detection Measures: Banks are expected to enhance fraud monitoring systems, including the use of artificial intelligence-based detection and prevention tools to identify suspicious transactions and reduce customer losses.
The proposed framework reflects the RBI’s attempt to strike a balance between customer protection and responsible digital banking behavior. By introducing limited compensation even in certain cases involving customer error, the RBI aims to support vulnerable consumers and maintain trust in the digital payments’ ecosystem. At the same time, the one-time compensation cap, reporting requirements, and burden of proof provisions indicate a cautious approach designed to minimize misuse and encourage timely reporting of fraud. The framework is also likely to increase compliance, monitoring, and operational costs for banks, particularly as they invest in stronger fraud prevention and detection systems.
Net Open Position in Rupee (NOP-INR) Directions, 2026
On March 27, 2026, the RBI directed Authorized Dealers to maintain their Net Open Position in Rupee (“NOP-INR”) in the onshore deliverable foreign exchange market within a limit of USD 100,000,000 (United States Dollars One Hundred Million) at the close of each business day. Banks have been asked to comply with the revised limit by April 10, 2026.
The move marks a significant tightening of the existing framework, under which banks’ boards could determine net open position limits, subject to an overall ceiling of 25% (Twenty Five Percent) of total capital. The revised requirement is aimed at containing excessive speculation, reducing volatility in the foreign exchange market, and supporting the Indian rupee amid continued depreciation pressures.
Key Highlights
Daily Net Open Position Cap: Banks and Authorised Dealers must ensure that their NOP-INR positions in the onshore deliverable foreign exchange market do not exceed USD 100,000,000 (United States Dollars One Hundred Million) at the end of each business day.
Implementation Timeline: The revised cap is required to be implemented by April 10, 2026.
Departure from Existing Framework: The new cap overrides the earlier regime under which banks’ boards could independently determine open position limits, subject to an overall ceiling of 25% (Twenty Five Percent) of total capital.
Three-Month Extension Requested: Several domestic and foreign banks have reportedly requested the RBI to extend the compliance timeline by three months to allow for a smoother transition.
Concerns over Arbitrage Unwinding: Banks have expressed concern that immediate implementation may force abrupt unwinding of arbitrage positions between the onshore deliverable market and the offshore Non-Deliverable Forward (“NDF”) market, potentially leading to trading losses.
Existing Positions Concentrated in Short Tenors: According to banking officials, a significant portion of these arbitrage positions are concentrated in the one-to-three-month maturity bucket, and lenders have proposed that existing positions be permitted to continue until maturity.
Pressure on the Rupee: The measure comes against the backdrop of heightened pressure on the Indian rupee, which recently touched a record low of INR 94.84 (Indian Rupees Ninety Four point Eight Four) against the U.S. dollar and has depreciated by more than 5% (Five Percent) in 2026.
Drivers of Currency Weakness: The rupee’s decline has been attributed to rising oil prices, foreign portfolio outflows, and geopolitical tensions involving Iran, which have increased concerns around global energy supply disruptions.
Expected Impact on Banks: The new limits are likely to reduce banks’ trading flexibility and may increase hedging costs or lead to losses on existing positions as lenders adjust their exposure.
Market Stability Objective: By capping open rupee positions, the RBI aims to curb excessive currency speculation, moderate exchange rate volatility, and maintain orderly conditions in the foreign exchange market.
The revised NOP-INR framework represents one of the RBI’s most significant interventions in the foreign exchange market in recent years. While the measure is intended to reduce speculative activity and support the rupee, it may also create short-term market disruption as banks unwind existing positions. If the RBI grants a temporary extension or allows legacy positions to run to maturity, the transition may be smoother and less disruptive to both banks and the broader currency market.
Reserve Bank of India (Trade Relief Measures) Directions, 2026
On March 31, 2026, the RBI issued the Reserve Bank of India (Trade Relief Measures) Directions, 2026 to provide temporary relief to exporters affected by geopolitical uncertainties and logistical disruptions arising from the West Asia crisis. The measures are aimed at easing export financing constraints, supporting working capital requirements, and providing flexibility in the realization and repayment of export credit facilities.
The RBI noted that it had received multiple representations from exporters and industry stakeholders regarding difficulties in meeting timelines for export realization and repayment due to disruptions in shipping routes, delayed deliveries, and broader supply chain challenges.
Key Highlights
Extension of Enhanced Export Credit Period: The RBI has extended the enhanced export credit period of 450 (four hundred and fifty) days for all export credit disbursals made up to June 30, 2026.
Continued Relaxation for Export Realization: The enhanced period for realization and repatriation of export proceeds will continue to remain at 15 months from the date of export, instead of the earlier nine-month timeline.
Coverage of Export Categories: The relaxation applies to export proceeds arising from export of goods, software, and services from India.
Applicability to Pre-Shipment and Post-Shipment Credit: The extended 450 (four hundred and fifty)-day period applies to both pre-shipment and post-shipment export credit facilities.
Recalculation of Drawing Power: Lenders have been permitted to recalculate drawing power in working capital facilities by reducing margins or through reassessment during the period between September 1, 2025 and December 31, 2025.
Support for Impacted Sectors: The recalculation of drawing power is intended to ease the debt servicing burden on sectors significantly affected by export delays and logistical disruptions.
Alternative Liquidation of Packing Credit: Lenders may permit liquidation of packing credit facilities availed on or before August 31, 2025 where dispatch of goods could not take place due to disruptions.
Use of Alternate Sources for Repayment: Exporters may liquidate such packing credit facilities through legitimate alternate sources, including domestic sale proceeds of the goods or proceeds from substitute export contracts.
Continued Monitoring by RBI: The RBI has stated that it will continue to monitor the situation closely and may intervene further if necessary depending on the evolving geopolitical and logistical situation.
The Trade Relief Measures Directions provide important temporary relief to exporters facing delays in shipments, payments, and working capital cycles. By extending the export realization timeline and export credit period, the RBI has sought to reduce stress on exporters whose receivables are delayed due to disruptions beyond their control. The flexibility given to lenders in recalculating drawing power and allowing alternative liquidation of packing credit is also likely to help preserve liquidity for export-oriented businesses, particularly those operating in sectors heavily dependent on global supply chains and shipping routes.
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA
Insolvency and Bankruptcy Code (Amendment) Bill, 2026
On April 1, 2026, the Rajya Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2026, following its approval by the Lok Sabha on March 30, 2026. The Bill was moved in the Rajya Sabha by Finance Minister Nirmala Sitharaman.
The Bill seeks to strengthen the insolvency resolution framework under the Insolvency and Bankruptcy Code, 2016 (“IBC”) by reducing delays, enhancing creditor confidence, improving resolution timelines, and aligning the insolvency regime with evolving business practices and judicial developments. The legislation was originally introduced in the Lok Sabha on August 12, 2025 and was subsequently referred to a Select Committee chaired by Baijayant Panda, which submitted its report on December 17, 2025.
Key Highlights
Parliamentary Approval: The Rajya Sabha passed the Bill on April 1, 2026, completing the legislative process following its passage in the Lok Sabha on March 30, 2026.
Objective of the Bill: The amendments seek to strengthen the insolvency framework, reduce procedural delays, improve creditor recoveries, and streamline insolvency proceedings.
Legislative Background: The Bill was originally introduced in the Lok Sabha on August 12, 2025 and referred to a Select Committee for detailed examination.
Select Committee Review: The Select Committee comprised 24 members and submitted its report on December 17, 2025.
Number of Amendments: The Bill proposes 12 amendments to the existing Insolvency and Bankruptcy Code framework.
Creditor-Initiated Resolution Framework: The Bill proposes replacing the underutilized fast-track process with a creditor-initiated insolvency framework that includes greater reliance on out-of-court settlements and debtor-in-possession models.
Faster Admission Timeline: The Bill introduces a mandatory 14 (fourteen)-day timeline for admission of insolvency applications once default has been established.
Reduction in Litigation Delays: The amendments seek to address excessive litigation and procedural bottlenecks that have contributed to delays in insolvency resolution.
Group and Cross-Border Insolvency: The Bill introduces provisions relating to group insolvency and cross-border insolvency to address increasingly complex corporate structures and international transactions.
Real Estate Sector Reforms: The amendments provide for project-wise resolution in the real estate sector to better protect homebuyers and facilitate faster resolution of distressed projects.
Improved Recovery Outcomes: The Government has stated that the IBC has already contributed significantly to recovery of non-performing assets, with over INR4.11 Lakh Crores reportedly recovered through insolvency resolutions.
The Bill represents one of the most significant reforms to India’s insolvency regime since the enactment of the Insolvency and Bankruptcy Code in 2016. By introducing faster admission timelines, reducing litigation delays, strengthening creditor rights, and enabling new mechanisms such as group and cross-border insolvency, the amendments are expected to improve the efficiency and credibility of the insolvency process. With Parliament having passed the Bill, it is likely to further reinforce India’s ease of doing business framework and strengthen confidence among lenders, investors, and distressed asset buyers.
Disclaimer:-
The content provided in this update is for educational and informational purposes only and should not be construed as legal advice or the opinion of Tempus Law Associates. Tempus Law Associates disclaims any liability in connection with the use of this information without seeking appropriate legal counsel.
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