RBI Lifts Ban On ECL Finance, Edelweiss Asset Reconstruction With Immediate Effect

The Reserve Bank of India lifted business restrictions on ECL Finance Ltd. and Edelweiss Asset Reconstruction Co. on Tuesday as the central bank was satisfied with remedial measures put in place by the companies, it said in a media statement.

The move comes after the central bank had imposed business restrictions on both companies belonging to the Edelweiss Group in May.

Given the engagements of the companies with the RBI to address the supervisory concerns and having been satisfied on the same, it has decided to lift such with immediate effect, the central bank said.

"Very grateful to our management teams and the boards of both the companies," Edelweiss Group Co-Founder Rashesh Shah told NDTV Profit. "They ensured that everyone worked positively on strengthening our systems and processes. Also thankful to the RBI for their consultative and proactive guidance on helping us resolve this."

The RBI had asked ECL Finance to cease and desist from undertaking any structured transactions in respect of its wholesale exposures, other than repayment or closure of accounts in its normal course of business.

The country's financial regulator had barred Edelweiss ARC from the acquisition of financial assets, including security receipts, and reorganising the existing receipts into senior and subordinate tranches.

These restrictions had a material impact on both the companies' financials. For the quarter ended September, ECL Finance's wholesale book was down 34% to Rs 3,750 crore. Edelweiss ARC's assets under management fell to Rs 28,910 crore in the July-September period from Rs 37,650 crore a year ago.

The RBI had taken this action as it found that the group entities were acting in concert, by entering into a series of structured transactions for evergreening stressed exposures of ECL Finance, using the platform of the asset reconstruction company and connected AIFs.

The RBI had observed incorrect valuation of security receipts in both ECL Finance and Edelweiss ARC.

In ECL Finance, there were 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 and non-adherence to KYC norms.

"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," the RBI had said.

In Edelweiss ARC, the RBI observed non-compliance with regulations pertaining to settlement of loans and sharing of non-public information of its clients with group entities.