Case Brief
The Reserve Bank of India imposed business restrictions on ECL Finance Ltd and Edelweiss Asset Reconstruction Company Limited, both belonging to the Edelweiss Group, under powers available under SARFAESI and the RBI Act. ECL Finance has been directed to cease and desist immediately from undertaking any structured transactions in respect of its wholesale exposures, except repayment and/or closure of accounts in the normal course of business. EARCL has been directed to cease and desist from acquisition of financial assets, including security receipts, and from reorganising existing security receipts into senior and subordinate tranches. RBI said the restrictions were based on material supervisory concerns arising from the group entities acting in concert through a series of structured transactions to evergreen stressed exposures of ECL using EARCL and connected AIFs, thereby circumventing applicable regulations. RBI also observed incorrect valuation of security receipts in both entities, incorrect details of eligible book debts being submitted to lenders for drawing power computation, non-compliance with loan-to-value norms for lending against shares, incorrect CRILC reporting, non-adherence to KYC guidelines, routing of loans from non-lender group entities to the group ARC in a manner that circumvented the ARC acquisition rules, failure to place RBI’s supervisory letter before EARCL’s Board, non-compliance with loan settlement regulations, and sharing of non-public client information with group entities. RBI said the companies had not taken meaningful remedial action despite engagement with senior management and auditors, and directed both companies to strengthen their assurance functions to ensure compliance. The restrictions will be reviewed after the supervisory observations are rectified to RBI’s satisfaction.
Action Snapshot
- Primary Impact
- Business restriction