RBI imposes business restrictions on ECL Finance, Edelweiss Asset Reconstruction Co due to supervisory concerns
Edelweiss Asset Reconstruction Company Limited (EARCL) to stop the acquisition of financial assets, including security receipts (SRs), and refrain from reorganizing existing SRs into senior and subordinate tranches, it said.
The Reserve Bank of India (RBI) has imposed stringent business restrictions on two entities of the Edelweiss Group--ECL Finance Limited (ECL) and Edelweiss Asset Reconstruction Company Limited (EARCL). This decisive action comes in response to supervisory concerns identified during recent examinations, as per RBI release. According to RBI, invoking its authority under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and the Reserve Bank of India Act, 1934, ECL Finance Ltd (ECL) to cease and desist immediately from engaging in any structured transactions involving wholesale exposures, except for the repayment or closure of accounts in the normal course of business.
Edelweiss Asset Reconstruction Company Limited (EARCL) to stop the acquisition of financial assets, including security receipts (SRs), and refrain from reorganizing existing SRs into senior and subordinate tranches, it said. The supervisory examinations revealed that the Edelweiss Group entities had engaged in a series of structured transactions aimed at evergreening stressed exposures of ECL. This was achieved through the platform of EARCL and connected Alternative Investment Funds (AIFs), effectively circumventing applicable regulations.
Additionally, incorrect valuation of SRs was observed in both ECL and EARCL, the RBI release said. Specific supervisory concerns for ECL included: submission of incorrect details of eligible book debts to lenders for drawing power computation; non-compliance with loan-to-value norms for lending against shares; and incorrect reporting to the Central Repository for Information on Large Credits system (CRILC); and non-adherence to Know Your Customer (KYC) guidelines. Acting as a conduit by taking over loans from non-lender group entities for ultimate sale to EARCL, thereby circumventing regulations that allow ARCs to acquire financial assets only from banks and financial institutions, the release said.
For EARCL, other violations included: Failure to place the RBI's supervisory letter issued after the 2021-22 inspection before its Board. Non-compliance with regulations pertaining to the settlement of loans. Sharing non-public information of its clients with group entities. Despite ongoing engagement with the senior management and statutory auditors of the concerned entities over the past few months, no meaningful corrective action has been undertaken. This lack of rectification has necessitated the imposition of these business restrictions, it said.
The RBI has also directed both companies to strengthen their assurance functions to ensure full regulatory compliance.The imposed restrictions will be reviewed upon satisfactory rectification of the supervisory observations by the Edelweiss Group entities.These measures are in addition to any other regulatory or supervisory actions that the RBI may initiate against ECL and EARCL.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
EPFO Pension Schemes: Early pension, retirement pension, nominee pension and 4 other pension schemes that every private sector employee should know
Tata Motors, Muthoot Finance and 3 more: Axis Direct recommends buying these stocks for 2 weeks; check targets, stop losses
07:31 PM IST