Comments
The Reserve Bank of India has imposed business restrictions on two Edelweiss Group entities including Edelweiss Asset Reconstruction Company Ltd (EARCL) and ECL Finance Ltd for alleged violation of regulatory norms. EARCL has been ordered to stop the acquisition of financial assets, including security receipts (SRs) and reorganising the existing SRs into senior and subordinate tranches with immediate effect.
“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,” the RBI said.
Incorrect valuation
Incorrect valuation of SRs was also observed in both ECL and EARCL. Apart from the above, in ECL, supervisory observations included 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, incorrect reporting to Central Repository for Information on Large Credits system (CRILC) and non-adherence to know your customer (KYC) guidelines.
ECL, by taking over loans from non-lender entities of the group for ultimate sale to the group ARC, allowed itself to be used as a conduit to circumvent regulations which permit ARCs to acquire financial assets only from banks and Financial Institutions.
“Instead of taking meaningful remedial action to rectify the said deficiencies, it was observed that the group entities were resorting to new ways to circumvent regulations. Over the last few months, the Reserve Bank has been engaging with the senior management of the captioned entities and their statutory auditors, but no meaningful corrective action has been evidenced so far, necessitating the imposition of business restrictions,” the RBI said.
Further, both companies have been directed to strengthen their assurance functions to ensure regulatory compliance in letter and spirit at all times. The business restrictions being placed now shall be reviewed after the rectification of the supervisory observations by the group to the satisfaction of RBI.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.