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The Reserve Bank of India (RBI) has imposed business restrictions on two Edelweiss Group companies, ECL Finance Ltd and Edelweiss Asset Reconstruction Company Ltd (EARCL), due to material supervisory concerns. These actions are based on observations from supervisory examinations, which found that the group entities were acting in concert to engage in structured transactions for evergreening stressed exposures of ECL using the platform of EARCL and connected alternative investment funds. This was done to circumvent applicable regulations.
Specifically, the RBI has directed EARCL to cease and desist from the acquisition of financial assets, including security receipts (SRs), and reorganizing existing security receipts. For ECL Finance, the RBI has directed it 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.
The RBI has also highlighted incorrect valuation of security receipts by both EARCL and ECL, and other supervisory observations for ECL include 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 the Central Repository for Information on Large Credits system, and non-adherence to Know Your Customer guidelines.
The RBI’s actions are based on concerns that these activities circumvent regulations which permit asset reconstruction companies to acquire financial assets only from banks and financial institutions. The restrictions will be reviewed after the rectification of the supervisory observations by the group to the satisfaction of the Reserve Bank.
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