Restrictions lifted: ECL Finance and Edelweiss ARC get green signal from RBI

The Reserve Bank of India (RBI) on Tuesday lifted its five-month-old restrictions on two Edelweiss Group entities – ECL Finance and Edelweiss Asset Reconstruction Company (ARC) – after the companies took corrective steps to comply with regulatory norms.

The restrictions imposed on May 29 were not a slap on the wrist. ECL Finance was prohibited from conducting regulated transactions related to its wholesale exposures, other than regular repayments or account closures.

Edelweiss ARC has been ordered to cease acquisitions of financial assets, including security receipts (SR), and to reorganize its holdings of security receipts into primary and subordinated tranches.

The companies were penalized for indulging in a series of “structured transactions” aimed at rolling over non-performing loans – a move that concealed the true extent of non-performing assets.

Evergreening involves extending new loans to stressed borrowers to repay existing loans, a practice the Reserve Bank of India has warned against to hide financial realities.

The measures taken by the regulatory body were tough but clear-cut. ECL and Edelweiss ARC faced a hard freeze that forced them into action. “The companies have engaged with the Reserve Bank of India on remedial measures to address supervisory concerns,” the central bank said. Satisfied with the measures taken, the Reserve Bank of India announced the lifting of restrictions, signaling the end of sanctions under the Reserve Bank of India Act, 1934, and the SARFAESI Act, 2002.