The Reserve Bank of India (RBI) has lifted the restrictions imposed on ECL Finance Limited and Edelweiss Asset Reconstruction Company Limited, both part of the Edelweiss Group, after the companies implemented remedial measures to address the concerns raised by the RBI. In May 2024, the RBI had imposed business restrictions on the two companies for violating regulatory norms. The restrictions were put in place due to “material concerns” arising from the conduct of the group entities, which were observed during supervisory examinations.
The RBI had directed ECL Finance to cease and desist from undertaking structured transactions, while Edelweiss Asset Reconstruction was told to stop acquiring financial assets and reorganizing security receipts. The concerns arose from the companies’ practice of entering into structured transactions to evergreen stressed exposures, which circumvented applicable rules. The RBI also found incorrect valuation of security receipts, submission of incorrect details to lenders, non-compliance with loan-to-value norms, and non-adherence to Know Your Customer (KYC) guidelines.
Additionally, the RBI found that ECL Finance was used as a conduit to circumvent regulations, allowing it to acquire loans from non-lender entities within the group for ultimate sale to the group’s asset reconstruction company. Edelweiss Asset Reconstruction was also found to have violated regulations, including not placing supervisory letters before the board, non-compliance with loan settlement regulations, and sharing non-public client information with group entities.
After examining the remedial measures put in place by the companies, the RBI has lifted the restrictions, allowing them to resume normal business operations. The lifting of restrictions is a positive development for the Edelweiss Group, which had been facing regulatory issues. The RBI’s action highlights the importance of compliance with regulatory norms and the need for companies to maintain transparency and integrity in their operations. The incident also serves as a reminder to financial institutions to ensure that they are adhering to all relevant regulations and guidelines to avoid similar restrictions in the future.