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.

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

Evergreening refers to a practice where new loans are given to 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.

“The companies engaged with the RBI on the remedial measures to address the supervisory concerns,” said the central bank’s statement on Tuesday. It added that the RBI lifted the restrictions as it is 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).