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The Reserve Bank of India (RBI) on Tuesday lifted its five-month-long restrictions on two Edelweiss Group entities—ECL Finance and Edelweiss Asset Reconstruction Company (ARC)—after the firms took corrective steps to align with regulatory norms.
The restrictions, imposed on May 29, were no slap on the wrist. ECL Finance was barred from undertaking structured transactions tied to its wholesale exposures, except for normal repayments or account closures.
Edelweiss ARC was ordered to halt acquisitions of financial assets, including security receipts (SRs), and reorganize its SR holdings into senior and subordinate tranches.
The firms were penalized for indulging in a series of “structured transactions” aimed at evergreening distressed loans—a move that disguised the true extent of stressed assets.
Evergreening involves extending fresh loans to stressed borrowers to repay existing ones, a practice the RBI has warned against for masking financial realities.
The regulator’s measures were harsh but clear-cut. ECL and Edelweiss ARC faced a strict freeze that pushed them into action. “The companies engaged with the RBI on the remedial measures to address the supervisory concerns,” the central bank said. Satisfied with the measures undertaken, the RBI announced the lifting of restrictions, signaling an end to the sanctions under the RBI Act, 1934, and the SARFAESI Act, 2002.
