The RBI (Reserve Bank of India) superseded DHFL’s (Dewan Housing Finance Corporation Limited’s) board yesterday. The apex body also appointed an administrator so that the debt-laden firm can be referred to a bankruptcy court. R. Subramaniakumar, who was the CEO and MD of the Indian Overseas Bank has been appointed as the administrator for DHFL.
Following this, DHFL will become the first non-bank lending firm which will be referred to the NCLT (National Company Law Tribunal) under the rules bought by the government 6 days ago (15th November). RBI said the reason they are superseding DHFL’s board is twofold, major reason being the payment defaults and second being governance concerns.
According to RBI, DHFL will soon undergo the process of Insolvency and Bankruptcy Rules, 2019 according to the resolution of the company. It is said that the decision of superseding the board and referring DHFL to a bankruptcy court will only aid the loan providers to take decisions better without the presence of fear of being questioned by investigating agencies. Additionally, it will also help the potential investors to invest in companies where such allegations of funds diversion surfaced.
According to a banker, people were expecting from a long time that this action will be taken by the RBI, and as it has been taken it will only make the process swifter. He said ‘It was quite evident that the new rules would help resolve stress in the financial sector companies,’ he continued by saying ’since DHFL is at the epicentre of these troubles, the RBI has likely decided to take it up first’.
As per the new guidelines, only the regulator has the authority to refer a financial service provider to bankruptcy tribunal. According to Karan Mitroo, Partner at Luthra & Luthra (Law firm), the new regulations were introduced so that the Financial Service Firms could be brought within IBC’s (Insolvency and Bankruptcy Code) reach.
Mitroo said ‘IBC provides some level of comfort and confidence to investors of a resolution taking place. I believe that with DHFL going to NCLT and with the right investor interest, we would hopefully see a faster resolution which would be in the interests of all stake holders’.
A statutory inspection conducted by NHB (National Housing Bank) with reference to DHFL’s position on 31st March 2018, shows that the company is facing severe deterioration in the financial position.
In September 2019, RBI also took-over Punjab and Maharashtra Cooperative (PMC) Bank Limited’s board. Jai Bhagwan Bhoria was appointed as the administrated of PMC Bank Limited.
Earlier, the banks who have lent money to DHFL proposed to convert partial debt into 51% stake in DHFL to reduce the burden on the company’s books, however the idea was scrapped as the Ministry of Corporate Affairs asked SFIO (Serious Fraud Investigation Office) to investigate the alleged fraud at the lender.
Earlier, DHFL was summoned to the Bombay High Court after group of mutual funds bought NCDs (Non Convertible Debentures), additionally, the Retail NCD holders along with Fixed Deposit holders are in pursuit to recover their investments.
On Wednesday, DHFL informed the Bombay High Court that the company intends to repay the depositors but are unable to following the earlier restrictions imposed on the firm. The company has asked the court to make modifications to that order. The case was adjourned until 28th of November.
Aspi Chinoy, Senior Advocate who is representing DHFL said that the company is capable of repaying the depositors and even received a directive from the NBH 2 weeks ago, where the bank advised DHFL to request modification on the order from the court.
On 10th October, the Bombay High Court restricted DHFL from making any advances to the unsecured creditors, which includes the deposit holders. However, on the 13th of November the court released a modified order wherein DHFL was allowed to make the payments in lieu of the securitization deals but failed to provide relief to fixed deposit holders.
In the end of March 2018, DHFL had a public deposit of over Rs. 10,000 crores, but by early July the deposits dropped to a little over Rs. 6,000 crores, a drop of almost 40%. DHFL total debt stands tall at close to Rs. 84,000 crores, out of that Rs. 38,342 are owed to various banks.
