New Delhi, May 26 -- Alternative investment funds have urged the banking regulator to ease rules after the central bank capped combined investment by banks, non-bank lenders and other regulated entities into such vehicles, according to four people with knowledge of the development.

The Reserve Bank of India (RBI) last week issued a circular introducing an overall cap, barring entities regulated by it from investing more than 15% in alternative investment funds (AIFs). In case of a Rs.100 crore fund, banks, cooperative banks, financial institutions and non-bank financial companies (NBFCs) put together cannot invest more than Rs.15 crore. That's a setback for the ecosystem, which has so far depended on domestic financial institutions to ra...