RBI lifts restrictions on Edelweiss Group companies with immediate effect

The Reserve Bank of India (RBI) announced on Tuesday, December 17, that it has lifted restrictions imposed on two Edelweiss Group entities. According to the RBI, the restrictions on ECL Finance and Edelweiss Asset Reconstruction Company (ARC) were lifted after both entities took the necessary remedial actions and committed to continuously complying with regulatory guidelines.

The restrictions were imposed on May 29, 2024. ECL was directed to cease and desist from undertaking any structured transactions regarding its wholesale exposures other than repayment and/ or closure of accounts in its normal course of business. The firms were barred from acquiring financial assets.

Also Read: Evergreening, circumventing, no corrective action: Why RBI slapped curbs on Edelweiss firms

RBI restrictions on Edelweiss Group entities

Additionally, Edelweiss ARC was directed to cease and desist from acquiring financial assets, including security receipts (SRs), and to reorganise the existing the SRs into senior and subordinate tranches. The central bank had penalised non-bank firm ECL Finance and Edelweiss ARC for entering into a series of structured transactions to' evergreen' ECL's distressed loans.

"The two firms had acted in concert “by entering into a series of structured transactions for evergreening stressed exposures of ECL, using the platform of EARCL and connected (alternative investment funds), thereby circumventing applicable regulations," said the central bank in its statement in May. 

Also Read: Evergreening of loans still remains a bane of banking

Evergreening refers to a practice where new loans are provided to the stressed borrowers to enable them to repay existing loans. The RBI has publicly warned against the practice, which is typically aimed at masking a firm's amount of stressed loans. In response, Edelweiss Financial Services said it reviewed the RBI order on Edelweiss ARC and would address its observations. 

"We are dedicated to maintaining transparency and upholding the highest standards of corporate governance and committed to compliance with regulatory requirements. There will not be any material impact on the company’s resolution and recovery efforts. We assure all stakeholders that we are taking immediate steps to address the concerns raised by the RBI and to align our operations with regulatory expectations," said Edelweiss.

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On Tuesday, RBI finally lifted the restrictions and clarified in its statement that the companies engaged with the regulator on the remedial measures to address the supervisory concerns. RBI added that it lifted the restrictions as the authorities are satisfied based on the submissions and remedial measures put in place by the two entities to address the central bank's concerns.

The restrictions were imposed under the provisions of the Reserve Bank of India Act, 1934 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). On Tuesday, shares of Edelweiss Financial Services settled 7.76 per cent higher at ₹138.80 apiece on the BSE.