In a first, RBI moves NCLT seeking insolvency proceeding against DHFL

The Reserve Bank of India (RBI) on Friday said it had initiated insolvency proceedings against troubled mortgage lender Dewan Housing Finance (DHFL) and filed an application in the bankruptcy tribunal for the resolution of its liabilities to the tune of Rs 83,873 crore.

DHFL is the first financial services firm that has been referred to the National Company Law Tribunal (NCLT) after the Union government notified the financial services insolvency rules on November 15.

An interim moratorium on the assets of the beleaguered company has also commenced following the RBI’s application, and will continue till it is accepted or rejected by the NCLT. This means all the cases that have been filed by the bond holders against DHFL for the recovery of their dues will stop.

Unlike other insolvency cases where an interim resolution professional is appointed by the court on the recommendation of financial creditors, in this case, the administrator appointed by the banking regulator will perform the duties of a resolution professional and run the company with the help of an advisory committee.

The RBI superseded the board of DHFL on November 20 and appointed R Subramaniakumar, ex-MD and CEO of Indian Overseas Bank, the administrator of the mortgage lender. The RBI also appointed a three-member advisory committee to assist the administrator. They are Rajiv Lall, non-executive chairman at IDFC First Bank, and N S Kannan, managing director at ICICI Prudential Life Insurance. The third member is N S Venkatesh, chief executive, Association of Mutual Funds in India.

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The firm had an outstanding debt of Rs 88,873 crore as of July and the loan book at the end of July was to the tune of Rs 96,615 crore. Trouble started for the housing finance company after IL&FS defaulted on its debt obligations last year. In Q3FY19, DHFL virtually stopped disbursing new loans. It defaulted on its debt obligations in June 2019, after which rating agencies downgraded its commercial papers.

Lenders and the management had tried a resolution for the company wherein an inter-creditor agreement was signed by the lenders to the company in accordance with the provisions of the June 7 circular by the RBI. However, all bondholders were not on board and did not sign the ICA.

In a draft resolution plan, the company’s management had proposed that 2.3 per cent exposure to various categories of lenders — banks, bond holders, National Housing Bank, external borrowing, perpetual debt, commercial paper, subordinate debt — be converted into equity at Rs 54 a share, following which creditors would have a collective 51 per cent stake. The lenders did not agree and the RBI decided to step in.

Recently, the mortgage lender deferred its Q2 results. In the first quarter, the company reported a net loss of Rs 242.5 crore, as against a net profit of Rs 431.7 crore in the same period a year ago