The request by Alternative Investment Funds to increase caps for bank and NBFC investments raises critical considerations related to financial market evolution in India. On one hand, loosening these restrictions could unleash much-needed liquidity for AIF operations, encouraging diversification in asset allocation. However, increased exposure of systemically meaningful institutions like banks might introduce higher risk levels if safeguards are not upheld effectively. Any regulatory changes must strike a balance between nurturing investment ecosystems while maintaining systemic stability.