Shares of India’s housing finance major DHFL plunged on Wednesday morning, after the firm said that it will not accept new deposits, while stopping renewals of existing ones, with immediate effect. DHFL share price plunged by nearly 18% to hit the day’s low at Rs 107.15. “In view of the recent revision in the credit rating of our fixed deposit program, accepting of all fresh deposits, as well as renewals, has been put on hold with immediate effect,” DHFL said. The move comes after Care Ratings recently downgraded DHFL’s fixed deposit programme worth Rs 20,000 crore to CARE BBB- (Credit Watch with negative implications) from CARE A. According to CARE Ratings, CARE A signifies ‘low’ credit risk, while CARE BBB signifies ‘moderate’ credit risk.
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DHFL has also halted pre-mature withdrawals of existing deposits to “help reorganise its liability management.” However, the firm has said that it will continue to honour all pre-mature deposit withdrawal requests in case of any medical or financial emergency, subject to fulfilment of appropriate documentation. While there have been speculations regarding the creditworthiness of DHFL, the firm pointed out that it has repaid liabilities worth Rs 30,000 crore since September-18, without a single days delay.
Taking stock of the liquidity fears, Sandip Parekh of finsec Law Advisors said that the trouble about liquidity has already been in the public domain for several months now. “They are trying to manage the ultra short-term side of liquidity and they are giving an assurance which obviously is not worth too much, but they are saying that whenever anything becomes due, we will repay that,” Parekh said in an interview to ET Now. According to the expert, if the latest move helps DHFL to match their liquidity profile, and thereby take of asset-liability mismatch, to avoid a liquidity squeeze, it may be for the better. Sharing his view on how the firm could come out of the woods, Parekh said that DHFL could sell a part of its business. Further, DHFL should shrink both the assets and the liabilities to become a much smaller and solvent company.