Edelweiss Stock Drops 17% After RBI’s ECL, EARCL Moves
Edelweiss Financial Services witnessed a sharp decline of up to 17% in its share price during the opening trade on BSE on Thursday, May 30th, following the Reserve Bank of India’s imposition of business restrictions on two Edelweiss group entities. The stock opened at ₹64, marking a 17% decrease from its previous close of ₹77.45. However, it later recovered slightly and was trading 12.20% lower at ₹68 per share around 9:30 am. Concurrently, the equity benchmark Sensex experienced a 0.25% decline to 74,320 at that time.
According to a report by Mint, the RBI directed ECL Finance Ltd and Edelweiss Asset Reconstruction Co. Ltd (EARCL) to halt all fresh activities immediately. The regulator highlighted that these entities had collaborated to engage in a series of structured transactions aimed at renewing stressed exposures of ECL, utilizing EARCL and connected alternative investment funds to circumvent applicable regulations. Additionally, the RBI found discrepancies in the valuations of security receipts in both ECL and Edelweiss Asset Reconstruction Co. Ltd.
In response to the RBI’s directives, Edelweiss Financial Services stated in a late-night exchange filing on May 29th that it is reviewing the order concerning Edelweiss Asset Reconstruction Company and intends to address the observations made. The company emphasized its commitment to transparency, corporate governance, and regulatory compliance, reassuring stakeholders of the continuity of its resolution and recovery efforts despite the regulatory scrutiny.
Regarding ECL Finance Limited, Edelweiss Financials clarified in a separate exchange filing that the RBI order pertains to the company’s wholesale exposure. The company asserted that it had already passed a board resolution to discontinue this business in the previous financial year, which was duly disclosed in its financial statements ending March 31, 2024. Consequently, the company believes that these directives will not significantly affect its strategy and operations.
The company reiterated its commitment to adhering to RBI recommendations and expressed optimism about resolving the matter within the stipulated three-week timeframe. As of May 29th, Edelweiss Financial Services had recorded a more than 12% increase in its share price over the past year, reaching a 52-week high of ₹87.80 on the BSE on December 20, 2023, and a low of ₹37.43 on June 2 of the previous year.
