The Securities and Exchange Board of India (Sebi) is considering a plan to enable alternative investment funds (AIFs) to pledge the shares of underlying infrastructure companies within their portfolios.
The regulator has published a discussion paper on the issue.
Under the current rules, AIFs are prohibited from engaging in any leveraged activity, including stock lending or short selling.
According to SEBI, this ban runs the risk of banks being reluctant to lend to infrastructure projects.
"Allowing AIFs to create an encumbrance on their equity investments in infrastructure sector companies for project finance is essential for infrastructure development," stated SEBI.
Market participants have until February 26 to provide any comments on the proposal.