‘Will take necessary remedial steps’: ECL Finance on RBI restrictions 

ECL Finance Limited on May 30 said that it took note of RBI’s guidance and will take necessary remedial steps as required immediately. 

The Reserve Bank of India (RBI) on May 29 directed ECL Finance Ltd (ECL) 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. 

“We are reviewing the order and will address the observations mentioned in the RBI order. We are dedicated to maintaining transparency and upholding the highest standards of corporate governance and committed to compliance with regulatory requirements,” the company said in a filing to the exchanges. 

ECL added that there won’t be any material impact from the RBI guidance on the company’s resolution and recovery efforts, which would continue normally. 

In its advisory, the central bank also asked Edelweiss Asset Reconstruction Company Limited (EARCL) to cease and desist from the acquisition of financial assets including security receipts (SRs) and reorganising the existing SRs into senior and subordinate tranches. 

The central bank, in the exercise of its powers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Reserve Bank of India Act, 1934 imposed business restrictions on the following supervised entities respectively, belonging to the Edelweiss Group. 

“The above directions will have immediate effect,” the RBI said. 

The RBI further noted that 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, the central bank added in its notification. 

Shares of Edelweiss Financial Services tanked over 17% in early deals today after the Reserve Bank of India (RBI) on May 29 announced supervisory actions against ECL Finance and Edelweiss Asset Reconstruction Company, citing material supervisory concerns.