The monetary policy has bad news for private equity (PE) funds. The Reserve Bank of India (RBI) today expressed concern over higher leveraging by PEs in international mergers and acquisition (M&A) deals and raised questions over the longer term sustainability of such investments worldwide. The RBI’s caution comes in the wake of rising PE investments in the country even though the role of such investments in domestic M&As is minuscule, prompting analysts to say that the RBI has taken a futuristic view in view of the increased pace of foreign money inflows through PEs, venture capital funds and foreign institutional investors. RBI said, “In view of the opaque nature of PE activity, high levels of leveraging has raised concerns about longer-term sustainability. Given the size of business accruing to private equity, they carry risks to overall macroeconomic stability and, in particular, to EMEs.” PE investments in global M&As stand up to 25 per cent while its share in the Indian M&A scene is negligible to the extent of two per cent. In 2007, the overall PE deals in India amounted for $2.3 billion. […]