RBI lifts restrictions on Edelweiss Group firms ECL Finance, EARCL

The Reserve Bank has lifted the restrictions placed on ECL Finance Limited and Edelweiss Asset Reconstruction Company Limited after examining the remedial measures put in place by these companies to address the concerns of RBI.

In May 2024, the central bank imposed business restrictions on the two companies of the Edelweiss Group, ECL Finance and Edelweiss Asset Reconstruction Company, for certain violations of the RBI's regulatory norms.

The RBI directed ECL Finance Ltd to 'cease and desist' from undertaking any structured transactions regarding its wholesale exposures, other than repayment or closure of accounts in its normal course of business.

Edelweiss Asset Reconstruction was told to cease and desist from acquiring financial assets, including security receipts (SRs), and reorganising the existing SRs into senior and subordinate tranches.

The RBI said its action was based on "material concerns". These entities were observed during the course of supervisory examinations. The concerns had arisen out of the conduct of the group entities acting in concert, by entering into a series of structured transactions for evergreening stressed exposures of ECL, using the platform of EARCL and connected AIFs, which meant circumventing applicable rules.

The RBI also observed "incorrect valuation" of SRs in both ECL and EARCL. Besides, in ECL, the probe found the submission of "incorrect details of its eligible book debts to its lenders for computation of drawing power, non-compliance with loan to value norms for lending against shares, incorrect reporting to Central Repository for Information on Large Credits system (CRILC) and non-adherence to Know Your Customer (KYC) guidelines".

The RBI said ECL, by taking over loans from non-lender entities of the group for ultimate sale to the group ARC, allowed itself to be used as a "conduit" to circumvent regulations, which permitted ARCs to acquire financial assets only from banks and financial institutions.

In EARCL, other violations included not placing the Reserve Bank’s supervisory letter issued after the previous inspection for 2021-22 before the board, non-compliance with regulations pertaining to settlement of loans and sharing of non-public information of its clients with group entities.