RBI Imposes Business Restrictions on Edelweiss Group’s EARCL and ECL Finance

The Reserve Bank of India (RBI) has taken strict action against the Edelweiss group, imposing business restrictions on its asset reconstruction company and non-banking financial arm. The RBI has accused the group of not maintaining arm’s length with other group companies, leading to violations of regulations and circumvention of applicable rules.

The RBI barred the Edelweiss Asset Reconstruction Company Limited (EARCL) from acquiring financial assets and security receipts, as well as reorganizing existing SRs into senior and subordinate tranches. Additionally, the non-banking financial arm, ECL Finance, was prohibited from undertaking structured transactions for wholesale exposure, except for repayment and closure of accounts in the normal course of business.

The regulatory action was prompted by concerns raised during supervisory examinations, where EARCL and ECL Finance were found to be “acting in concert” to circumvent regulations and facilitate the evergreening of distressed assets. The RBI highlighted lack of transparency and consistency in the issuance and valuation of SRs by Indian ARCs.

The Edelweiss group has not responded to queries regarding the RBI’s curbs, but the business restrictions will be reviewed once the supervisory observations are rectified to the satisfaction of the RBI. The RBI has directed both companies to strengthen their assurance functions to ensure regulatory compliance at all times.

This development comes in the wake of a first information report (FIR) filed against the Edelweiss group and its ARC’s top management for alleged abetment to suicide, although the group has denied the allegations. The RBI’s actions underscore the importance of regulatory compliance and transparency in the financial sector.