Business restrictions on ECL Finance Limited and Edelweiss Asset Reconstruction Company Limited
The RBI has instructed ECL Finance (ECL) to stop engaging in any structured transactions related to its wholesale exposures, except for the repayment or closure of accounts as part of its regular business activities.
Admin
May 29, 2024
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Due to significant supervisory concerns, the Reserve Bank of India (RBI) imposed business restrictions on ECL Finance Limited and Edelweiss Asset Reconstruction Company Limited on May 29, 2024. ECL Finance is now prohibited from engaging in structured transactions related to its wholesale exposures, except for regular repayment or closure of accounts. Edelweiss Asset Reconstruction Company must stop acquiring financial assets, including security receipts, and reorganising existing security receipts.
Material Concerns
The RBI's actions stem from material concerns observed during supervisory examinations, where ECL and EARCL were found to be involved in structured transactions to evergreen stressed exposures, circumventing regulations through their affiliated entities. Both companies were also found to have incorrect valuations of security receipts and other regulatory violations.
ECL flouted regulations
ECL flouted regulations by taking over loans from non-lender group entities and selling them to its group ARC, circumventing rules that ARCs can only acquire financial assets from banks and financial institutions. EARCL failed to comply with previous supervisory directives and shared non-public client information with group entities.
Briefing
The RBI noted that despite engagement with senior management and auditors of the entities, no significant corrective action was taken, necessitating the business restrictions. Both companies must strengthen their compliance functions, and the limits will be reviewed once regulatory issues are satisfactorily addressed. Further regulatory or supervisory actions may also be initiated by the RBI.
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