by Ritmbarah Arora
Mumbai headquartered Dewan Housing Finance Corporation (DHFL) has been in the news lately because of various allegations. The second housing finance company to have been established in India, DHFL is now seeing an embarrassing concluding act, filled with early denials from management that the company was in trouble.
DHFL was set up to enable access to affordable housing finance to lower and middle-income groups in semi-urban and rural parts of India. The latest news of the firm heading towards bankruptcy is expected to worsen its already precarious liquidity crisis situation. Nearly nine-tenths of the company is secured against assets in borrowing.
The Reserve Bank of India (RBI) has taken control of the DHFL board citing “governance concerns and defaults” and also said that it will be proceeding towards the insolvency process. "The Reserve Bank also intends to shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the NCLT for appointing the Administrator as the Insolvency Resolution Professional," this is the statement released by the Central Bank in this regard.
The decision was taken by RBI after DHFL failed to agree on a resolution plan to get the firm back on the rails. RBI has appointed R Subramaniakumar, former MD and CEO of Indian Overseas Bank as the administrator and intends to ask the National Company Law Tribunal (NCLT) to appoint him as the resolution professional in charge of the insolvency process. The committee of creditors (CoC) will oversee a 180 day process to draw up a resolution plan.
As per a report released by Reuters, DHFL is among India’s top defaulters with almost 1 lakh crore debt to be paid to banks and mutual funds. The company has become the first nonbank lender to be sent to the NCLT under the Insolvency and Bankruptcy Code (IBC). The DHFL stocks that once touched a record high of Rs 252.2 on December 31, 2018 has now fallen by 97% to Rs 19.7. The company’s shares fell drastically by 16% after DHFL defaulted on debt repayment on June 6, 2019 which was a five and a half year low.