RBI imposes restrictions on Edelweiss Group entities amid supervisory concerns

The Reserve Bank on Wednesday imposed business restrictions on Edelweiss Group's lending and asset reconstruction arms on concerns over evergreening of loans.

The central bank has asked ECL Finance Ltd (ECL) to cease and desist from undertaking any structured transactions in respect of its wholesale exposures, other than repayment and/or closure of accounts, an official statement said.

In the case of Edelweiss Asset Reconstruction Company Ltd (EARCL), the RBI has asked the entity to cease and desist from acquisition of financial assets, including security receipts (SRs) and reorganising the existing SRs, into senior and subordinate tranches.

Both the actions are with immediate effect, the RBI statement said.

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"The action is based on material concerns observed during the course of supervisory examinations, essentially arising out of conduct of the group entities acting in concert, by entering into a series of structured transactions for evergreening stressed exposures of ECL, using the platform of EARCL and connected AIFs, thereby circumventing applicable regulations," it said.

In the recent past, the RBI had flagged concerns around the alternative investment funds (AIFs) being used for evergreening of loans and asked financiers to set aside more money for such investments.

The central bank has also been resorting to imposing business restrictions on errant entities like barring IIFL Finance from extending gold loans and on J M Financial Products.

On the action against the Rashesh Shah-led Edelweiss Group entities, the central bank said incorrect valuation of SRs was also observed in both ECL and EARCL.

The RBI found that ECL had indulged in a slew of wrong practices, including submission of incorrect details of its eligible book debts to its lenders for computation of drawing power, non-compliance with loan to value norms for lending against shares.