RBI takes regulatory action on Edelweiss subsidiaries

The two subsidiaries are –

  • ECL Finance Limited (EFL) – it is being directed to cease and desist, with immediate effect, 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.
  • Edelweiss Asset Reconstruction Company Limited (EARCL) – it is being directed to cease and desist from acquisition of financial assets and security receipts (SRs). It is also barred from reorganising the existing SRs into senior and subordinate tranches.

The RBI stated that the action is based on material concerns observed during supervisory examinations, primarily arising from the group entities’ conduct. EARCL and EFL were found to be “acting in concert” by entering into a series of structured transactions for “evergreening stressed exposure of ECL, using the platform of EARCL and connected AIFs, thereby circumventing applicable regulations.

Even after the deficiencies were pointed out, the RBI said instead of taking remedial action, the group entities were resorting to new ways to circumvent regulations.

The regulatory action comes days after Swaminathan J, deputy governor at the RBI, flagged that some Indian ARCs were bypassing regulations and facilitating the evergreening of distressed assets. He also underscored lack of transparency and consistency in the issuance and periodic valuation of SRs.

The business restrictions imposed on EARCL and EFL Finance would be reviewed after the rectification of the supervisory observations by the group to the satisfaction of the RBI.

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