On October 14, rating agency Icra had downgraded securitised DHFL assets with an aggregate outstanding of Rs 595 crore, of which pools worth Rs 147 crore were assigned a ‘default’ grade. The rest were downgraded to ‘BB’ from ‘BBB’.
The Reserve Bank of India (RBI) on Friday set up an advisory committee comprising Rajiv Lall, non-executive chairman, IDFC First Bank; NS Kannan, MD and CEO, ICICI Prudential Life Insurance; and NS Venkatesh, CEO of AMFI, to assist R Subramaniakumar, administrator for the bankrupt lender DHFL. On Wednesday, the central bank superseded the board of DHFL following corporate governance issues and as the lender had defaulted on its dues.
The NBFC owes banks, the National Housing Board, mutual funds, bondholders, including retail bondholders, close to Rs 1 lakh crore.
Banks have been struggling to get different categories of lenders to greenlight a resolution plan for DHFL after signing an inter-creditor agreement (ICA) on July 27. However, mutual funds led by Reliance Nippon Asset Management Company dragged DHFL to the Bombay High Court on October 1, just few days after the final resolution plan was submitted to lenders.
Even as the Serious Fraud Investigation Office (SFIO) started an investigation into DHFL, a forensic audit report by KPMG suggested funds may have been diverted by the non banking financial company.
The RBI’s decision on DHFL comes after the government on November 18 empowered regulators under Section 227 of Insolvency and Bankruptcy Code (IBC) to refer cases of stressed financial service providers with assets of at least Rs 500 crore to the insolvency court. The rules provide for a panel to advise the administrator “in the operations of the financial service provider during the corporate insolvency resolution process”.
The stakeholders are now waiting for the RBI to refer DHFL to NCLT.
Ashish Pyasi, associate partner, Dhir & Dhir Associates, said, “After the RBI officially refers DHFL to NCLT, the interim moratorium period will start. The appointed committee will assist resolution professional during insolvency of DHFL in NCLT”.
DHFL had proposed a resolution plan in which lenders would acquire 51% of the company; 2.3% of each lender’s exposure would be converted into equity at Rs 54/share.
To make matters worse, payments to 1,00,000 deposit holders could not be made when the Bombay High Court directed the company to stop payments to banks and NBFCs, including deposit holders. The HC later allowed troubled mortgage lender on November 5 to make payments to banks and NBFCs, which have securitisation arrangements with it. However, the deposit holders are yet to get relief on payments by the court. The Bombay HC is scheduled to hear the matter next on November 28.
There has also been a growing concern about the quality of loan pools bought by banks from DHFL after a forensic audit report by KPMG was reported to have found evidence of fund diversion by the company. Public sector banks (PSBs), including SBI, have bought loan pools worth a total Rs 12,000 crore from DHFL, said the report by Macquarie. On October 14, rating agency Icra had downgraded securitised DHFL assets with an aggregate outstanding of Rs 595 crore, of which pools worth Rs 147 crore were assigned a ‘default’ grade. The rest were downgraded to ‘BB’ from ‘BBB’.
Union Bank of India and UCO Bank have already classified the loan as a non-performing asset (NPA) in the September quarter this year. FE reported earlier that SBI, Bank of Baroda (BoB) and Union Bank of India are understood to be among those contemplating a move to classify exposure to DHFL as fraud account. The RBI requires banks to provision fully for their entire exposure over four quarters if they decide a loan account involves fraud.