MUMBAI: The Reserve Bank of India (RBI) on Wednesday barred the Edelweiss group’s asset reconstruction company from acquiring financial assets and security receipts (SRs), and also its non-banking financial arm from undertaking any structured transaction for wholesale exposure, other than repayment and/ or closure of accounts in its normal course of business. The Edelweiss Asset Reconstruction Company Limited (EARCL) has also been barred from reorganising the existing SRs into senior and subordinate tranches.
The RBI stated that the action is based on material concerns observed during supervisory examinations, primarily arising from the group entities’ conduct. EARCL and ECL Finance were found to be “acting in concert” by entering into a series of structured transactions for “evergreening stressed exposure of ECL, using the platform of EARCL and connected AIFs, thereby circumventing applicable regulations”, it said.
Edelweiss Asset Reconstruction Company in exchange filing said the company takes note of RBI’s guidance and will take necessary remedial steps as required immediately.
The regulatory action comes days after Swaminathan J, deputy governor at the RBI, flagged that some Indian ARCs were bypassing regulations and facilitating the evergreening of distressed assets. He also underscored lack of transparency and consistency in the issuance and periodic valuation of SRs.
The business restrictions imposed on EARCL and ECL Finance would be reviewed after the rectification of the supervisory observations by the group to the satisfaction of the RBI.
The Edelweiss group did not respond to queries regarding the RBI’s curbs until the time of going to press.
Edelweiss ARC, one of the large asset reconstruction companies registered with the regulator, saw its assets under management (AUM) fall to Rs 31,590 crore at the end of March 2024, down from Rs 37,100 crore a year ago.
It acquired debt assets worth Rs 455 crore in Q4FY24 and Rs 13,187 crore in the entire financial year.
ECL Finance, on the other hand, has been scaling down its wholesale book for over two years. The book declined by 42 per cent on a year-on-year basis to Rs 4,150 crore by March 2024.
