RBI imposes business curbs on two Edelweiss group entities

ECL Finance, EARCL acted in concert to evergreen stressed exposures of former

Amit Chettupuzha

MUMBAI: The Reserve Bank of India (RBI) has on Thursday (May 29) imposed business restrictions on ECL Finance Ltd (ECL) and Edelweiss Asset Reconstruction Company Ltd (EARCL), both belonging to the Edelweiss Group.

ECL Finance Ltd (ECL) has been directed to cease and desist from undertaking any structured transactions in respect of its wholesale exposures, other than repayment and/ or closure of accounts in its normal course of business.

EARCL, on the other hand, has been asked to cease and desist from acquisition of financial assets including security receipts (SRs) and reorganising the existing SRs into senior and subordinate tranches.

RBI said the action is based on material concerns observed during the course of supervisory examinations, essentially arising out of conduct of the group entities acting in concert.

Modus operandi

The modus operandi has that these companies have entered into a series of structured transactions for evergreening the stressed exposures of ECL, using the platform of EARCL and connected alternative Investment Funds (AIFs), thereby circumventing applicable regulations.

“Incorrect valuation of security receipts (SRs) was also observed in both ECL and EARCL. Apart from that, in ECL, supervisory observations included 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 statement 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 permit ARCs to acquire financial assets only from banks and financial institutions (FIs).

Call to strengthen assurance

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 and subordinate tranches.

Both the companies have been directed to strengthen their assurance functions to ensure regulatory compliance in letter and spirit at all times.