India cenbank acts against two Edelweiss Group companies for 'evergreening' loans (updated)

Edelweiss Financial Services

29/05/2024 14:07

(Updates with details throughout)
       MUMBAI, May 29 (Reuters) - India's central bank on
Wednesday barred two Edelweiss Group companies from acquiring
financial assets or undertaking structured transactions, saying
they engaged in "evergreening" distressed loans.
    Evergreening refers to a practice where new loans are given
to stressed borrowers to enable them to repay existing loans.
The RBI has publicly warned against the practice, which is
typically aimed at masking the amount of stressed loans a firm
holds.
    The entities, Edelweiss Asset Reconstruction Co Ltd (EARCL)
and non-bank firm ECL Finance (ECL), had entered into a series
of structured transactions for evergreening stressed loans of
ECL, the Reserve Bank of India said in a release.
    The RBI added that the firms circumvented applicable
regulations by using the platform of EARCL and connected
alternative investment funds.
    By taking over loans from non-lender entities of the group
for ultimate sale to the group ARC, ECL allowed itself to be
used as a conduit to bypass regulations, the RBI said.
        According to the central bank's norms, asset
reconstruction companies can acquire financial assets only from
banks and financial institutions.
    EARCL and Edelweiss Group did not immediately respond to a
Reuters email seeking comment.
    Incorrect valuation of security receipts was also observed
in both ECL and EARCL, the RBI said.
    "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 said, directing them to ensure regulatory compliance "in
letter and spirit at all times".
    The RBI has increased supervision of regulated entities to
prevent systemic risks and to ensure that regulations are
followed.
    RBI Deputy Governor Swaminathan J recently said that some
ARCs were allowing themselves to be used for the evergreening of
distressed assets.

 (Reporting by Siddhi Nayak in Mumbai, additional reporting by
NR Sethuraman in Bengaluru; Editing by Sohini Goswami)
 ((Sethuraman.NR@thomsonreuters.com; (+91 9945291420); Reuters
Messaging: nallur.sethuraman.thomsonreuters.com@reuters.net))