Edelweiss Stock Plummets 15% As RBI Slams Imposition On Group Companies
RBI directs ECL to cease from engaging in any structured transactions involving wholesale exposures, and EARCL to stop the acquisition of financial assets
Edelweiss Financial Services stock plummeted 15 per cent in the Thursday trading session after the Reserve Bank of India (RBI) imposed stringent business restrictions on two entities of the Edelweiss Group, ECL Finance (ECL) and Edelweiss Asset Reconstruction Company (EARCL).
Edelweiss Financial Services stock traded at Rs 65.90 with 14.9 per cent decline in the morning session on the National Stock Exchange.
This decisive action comes in response to supervisory concerns identified during recent examinations, as per RBI release.
According to RBI, invoking its authority under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and the RBI Act, 1934, ECL to cease and desist immediately from engaging in any structured transactions involving wholesale exposures, except for the repayment or closure of accounts in the normal course of business.
Further, the central bank also directed EARCL to stop the acquisition of financial assets, including security receipts (SRs), and refrain from reorganising existing SRs into senior and subordinate tranches.
The supervisory examinations revealed that the Edelweiss Group entities had engaged in a series of structured transactions aimed at evergreening stressed exposures of ECL.
This was achieved through the platform of EARCL and connected Alternative Investment Funds (AIFs), effectively circumventing applicable regulations. Additionally, incorrect valuation of SRs was observed in both ECL and EARCL, the RBI release said.
Specific supervisory concerns for ECL included: submission of incorrect details of eligible book debts to lenders for drawing power computation; non-compliance with loan-to-value norms for lending against shares; and incorrect reporting to the Central Repository for Information on Large Credits system (CRILC); and non-adherence to Know Your Customer (KYC) guidelines.
Acting as a conduit by taking over loans from non-lender group entities for ultimate sale to EARCL, thereby circumventing regulations that allow ARCs to acquire financial assets only from banks and financial institutions, the release said. (ANI)
Notably, after the central bank’s whip the year-to-date (YTD) return of Edelweiss Financial Services stock stood at a loss of more than 15 per cent.
