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RBI Bars Edelweiss ARC from Acquiring Financial Asset

May 31, 2024

By: BlinkX Research Team

The Reserve Bank of India imposed business restrictions on Wednesday, effective immediately, on ECL Finance and Edelweiss Asset Reconstruction Company, both part of the Edelweiss Group. 

Key Takeaways from RBI Actions:

• The RBI imposed business restrictions on ECL Finance and Edelweiss Asset Reconstruction Company, both part of the Edelweiss Group.
• ECL Finance is directed not to undertake any structured transactions concerning its wholesale exposures.
• Edelweiss Asset Reconstruction has been ordered to stop acquiring financial assets.

Under the directive, ECL Finance must cease undertaking any structured transactions concerning its wholesale exposures, other than repayment or closure of accounts in its normal course of business.

Similarly, Edelweiss Asset Reconstruction was ordered to stop acquiring financial assets, including security receipts and reorganising existing security receipts into senior and subordinate tranches.

The reasons behind these restrictions were a series of structured transactions of ECL through EARCL and associated alternative investment funds.

These transactions were found to circumvent regulatory guidelines, with issues such as incorrect valuation of security receipts, submission of incorrect details for computing drawing power, non-compliance with loan-to-value norms for lending against shares, incorrect reporting to the Central Repository for Information on Large Credits, and non-adherence to Know Your Customer guidelines.