Edelweiss shares tank 17% after RBI action on group entities

Edelweiss Financial share prices fell as much as 17% in opening trade on Thursday. This comes after Reserve Bank of India imposed business restrictions on two Edelweiss group entities on Wednesday.

Edelweiss Financial shares fall

Edelweiss Financial share price opened 17% lower at Rs 64 against its previous close of Rs 77.45. The shares however recovered a bit and was trading at around 12% low at 10 am. Meanwhile, equity benchmark sensex was down 0.55% at the time.

RBI's restriction on Edelweiss

RBI has ordered ECL Finance Ltd and Edelweiss Asset Reconstruction Co. Ltd (EARCL) to cease and desist from undertaking fresh activity. As per RBI, both the firms had circumvented applicable regulations by entering into a series of structured transactions for evergreening stressed exposures of ECL, using the platform of EARCL and connected (alternative investment funds).

RBI had also said that it had also found incorrect valuations of security receipts in both ECL and Edelweiss Asset Reconstruction Co. Ltd.

In a late-night exchange filing on May 29, Edelweiss Financial Services said it reviewed the RBI order on Edelweiss Asset Reconstruction Company 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, which will continue normally. We assure all our 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 Financial.

In a separate exchange filing, about ECL Finance, Edelweiss Financials said the RBI order concerns the company’s wholesale exposure. The company further claimed that it passed a board resolution to discontinue this business in the last financial year and hence Edelweiss Financials believes that the RBI's directions will not materially impact its strategy and business.

"The reduction of the wholesale exposure will continue as permitted, in the normal course of business. We reaffirm our commitment to complying with the RBI recommendations and hope to resolve this within three weeks, as directed by the RBI," said Edelweiss Financial.

Also watch: RBI imposes restrictions on Edelweiss Group entities amid supervisory concerns