Reappointment of Rajkumar Bansal has been rejected by RBI(Reserve Bank of India)

The Reserve Bank of India (RBI) has rejected the reappointment of Rajkumar Bansal as the Managing Director and Chief Executive Officer of Edelweiss Asset Reconstruction Company (ARC).

Other violations highlighted by the RBI included the failure to present the supervisory letter to the board, non-compliance with loan settlement regulations, and sharing non-public client information with group entities. Concerns have been raised by RBI Deputy Governors about governance and compliance within Asset Reconstruction Companies (ARCs), with references made to the use of ARCs to evergreen distressed assets and the potential for ARCs to become vehicles for tainted promoters.

Bansal, who joined Edelweiss ARC in April 2018, has over three decades of banking experience and retired as an executive director from IDBI Bank. The company’s regulatory filing on Tuesday stated, “…we at this moment inform you that about the reappointment of Rajkumar Bansal, as Managing Director & Chief Executive Officer (MD & CEO) of the Company, RBI has communicated that the company’s request has not been acceded to.” This decision follows recent business curbs imposed by the RBI on two Edelweiss group entities, including Edelweiss ARC, for regulatory breaches. The central bank identified that ECL Finance acquired loans from non-lender group entities for ultimate sale to the group’s ARC, circumventing regulations.

Other violations included failing to present the RBI’s supervisory letter to the board, non-compliance with loan settlement regulations, and sharing non-public client information with group entities. In a recent meeting, RBI Deputy Governors highlighted concerns about governance and compliance within ARCs. Deputy Governor Swaminathan J. pointed out ARCs being used to “evergreen distressed assets,” while Deputy Governor Rajeshwar Rao expressed concerns about ARCs becoming vehicles for “tainted promoters.” Lenders sell stressed loans to ARCs at a discount, receiving either cash or a mix of cash and security receipts, with a preference for money. ARCs had assets under management of ₹1.4 trillion as of March 31, 2023, while the total book value of stressed loans with ARCs stood at ₹8.48 trillion during the same period, according to a report by Crisil and Assocham.