ECL Finance and Edelweiss Asset Reconstruction Company are the subsidiaries of Edelweiss Financial Services.
Edelweiss said that the RBI has directed ECL Finance (ECLFL) to cease and desist, with immediate effect, from undertaking any structured transactions in respect of its wholesale exposures, other than repayment and/ or closure of accounts in its normal course of business. These directions shall be reviewed by RBI upon satisfactory remediation of their observations.
In the last financial year, ECLFL had passed a board resolution to discontinue this business, which was disclosed in its financial statements for the period ending 31 March 2024. The company, therefore, believes these directions will not materially impact its strategy and its business. Reduction of the wholesale exposure will continue as permitted, in the normal course of business.
With respect to Edelweiss Asset Reconstruction Company (EARCL), Edelweiss Financial stated that it has been directed by the RBI to cease and desist from acquisition of financial assets. EARCL has taken note of RBI’s guidance and will take necessary remedial steps as required immediately.
"We are reviewing the order and will address the observations mentioned in the RBI order. We are dedicated to maintaining transparency and upholding highest standards of corporate governance and committed to compliance with regulatory requirements. There will not be any material impact on company’s resolution and recovery efforts which would continue normally,” EARCL said in a statement.
In a press release issued yesterday, the RBI, with respect to the supervisory action against ECL and EARCL, said: "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.
Incorrect valuation of security receipts (SRs) was also observed in both ECL and EARCL.
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.
Further, both the 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 the Reserve Bank."
Edelweiss is a diversified financial services company with seven independent and well-governed businesses. The businesses include alternative asset management, mutual fund, asset reconstruction, corporate lending, housing finance, general and life insurance.
The company has reported 13.3% rise in consolidated net profit to Rs 169.11 crore despite a 1.2% fall in total income to Rs 3,026.62 crore in Q4 FY24 as compared with Q4 FY23.
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