Other experts pointed out that the quality of assets remaining with DHFL may not be of good quality and consequently, buyers may not be too interested.
By Shritama Bose & Malini Bhupta
Beleaguered DHFL owes banks, mutual funds and bond-holders, close to Rs 1 lakh crore. Of this, retail investors hold non-convertible debentures and fixed deposits worth about Rs 33,000 crore; around one lakh fixed deposit holders had invested a total of Rs 6,000 crore.
The central bank will soon apply to the NCLT (National Company Law Tribunal) asking it to appoint R Subramaniakumar, former, MD & CEO of Indian Overseas Bank, the insolvency resolution professional; meanwhile, Subramaniakumar will be the administrator for the process under Section 45-IE (2) of the RBI Act.
The troubled DHFL will be the first non-banking financial company for which a resolution will be found through the insolvency route. Sandeep Parekh, Finsec Advisors, said the process could turn out to be a challenging one and added speed was of essence. “Unentangling these companies from others could be difficult,” Parekh said, adding a more efficient process needed to be found.
Other experts pointed out that the quality of assets remaining with DHFL may not be of good quality and consequently, buyers may not be too interested. Already, between them a group of banks have bought securitised retail asset pools from DHFL worth approximately Rs 20,000 crore; the banks can access the repayments of these loans through an escrow mechanism. Banks have a total exposure to DHFL of over Rs 38,300 crore.
Earlier this week, the ministry of corporate affairs (MCA) notified that NBFCs with assets of over Rs 500 crore can be proceeded against for insolvency under Section 227 of the Insolvency and Bankruptcy Code (IBC). A clutch of NBFCs has been in financial trouble starting with the default by infrastructure lender IL&FS in August 2018, leaving the money markets short of credit. Market watchers expect the regulator to proceed against at least two more shadow banks.
Bankers told FE the resolution plan worked out by them, which envisages upfront repayments for retail investors rather than staggering them, was more or less accepted by RBI. DHFL’s FD holders will be paid on maturity and bondholders will be repaid in full once the moratorium on repayments imposed during the insolvency process lapses.
However, sector experts said that under the IBC, interested buyers will put in their bids for the troubled lender and may suggest a different repayments schedule. The current plan is likely to result in haircuts for banks. Bankers said SBI Capital Markets (SBICaps) would assist the IRP in the process. Bankers are hoping to complete the insolvency process for DHFL quickly but that would ultimately depend on the response of investors.