Ekanta Capital Fund I asks for a subscription line. Commitments are Rs 2,000 crore, Rs 1,200 crore uncalled, 70% of it from eligible investors, at a 50% advance rate. How large can the facility be, and what is the lender really exposed to?

The facility can be about Rs 420 crore: Rs 1,200 crore of uncalled commitments, 70% eligible, advanced at 50%. The lender is not lending against the fund's investments. It is lending against investors' contractual promises to fund capital calls, with a right to make those calls itself. Eligible commitments cover the line 2.0 times, so half the eligible investors could fail to fund before the lender loses money.

Imagine lending to a friend who is owed money by several reliable relatives, and taking a letter from him that lets you collect from them directly if he does not repay. A subscription lineA facility to a closed-ended fund secured on investors uncalled commitments, the money they have promised but not yet paid in. lends against investors' promises to pay, not against anything the fund owns. Called capital is already in portfolio companies and secures nothing. The collateral is the uncalled amount, and the lender takes security over the fund's right to call it and over the account the calls are paid into.

Start from Rs 1,200 crore uncalled. Only the 70% owed by eligible investors counts, Rs 840 crore, and the bank advances half of that: Rs 420 crore. The two filters do different jobs. Eligibility removes investors whose ability or willingness to pay the bank cannot judge; the advance rate leaves a cushion in case some eligible investors still fail. The facility also shrinks as the fund calls capital: after another Rs 400 crore of calls, the base falls to about Rs 280 crore.

Run the stress that matters: investors who promised money and do not pay. With cover of 2.0x, eligible investors owning half the eligible commitments could default and the lender would still be repaid in full. Beyond that it loses. In practice investor defaults are rare because a defaulting investor typically forfeits much of what it has already paid in, but they cluster in crises, when many institutions are short of cash at once.

Three documentary risks sit behind the arithmetic. The fund documents must permit borrowing and give investors no defence against a call made to repay the bank. Concentration matters: if one pension fund is 40% of eligible commitments, its failure alone eats most of the cushion, so cap any single investor's share of the base. And in India, SEBI's rules on alternative investment funds limit how, how much and for how long certain categories of fund may borrow, so confirm the current limits before offering a structure.