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

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

The restrictions, imposed on May 29, were not a slap on the wrist. ECL Finance was prohibited from carrying out structured transactions linked to its wholesale exposures, except for normal redemptions or account closures.

Edelweiss ARC was ordered to stop acquisitions of financial assets, including securities receipts (SRs), and reorganize its SR holdings into senior and subordinated tranches.

The companies were penalized for indulging in a series of “structured transactions” intended to make distressed loans permanent, a move that obscured the true extent of distressed assets.

Evergreening involves extending new loans to borrowers struggling to repay existing ones, a practice the RBI has warned against because it masks financial realities.

The regulator’s measures were harsh but clear. ECL and Edelweiss ARC faced a strict freeze that forced them to act. “The companies engaged with the RBI on corrective measures to address the supervisory concerns,” the central bank said. Satisfied with the measures taken, the RBI announced the lifting of restrictions, signaling the end of sanctions under the RBI Act, 1934 and the SARFAESI Act, 2002.