Regulator refers DHFL to bankruptcy tribunal
Out of DHFL’S ₹83,873 cr debt, ₹38,342 cr is owed to banks
MUMBAI: The Reserve Bank of India (RBI) on Friday referred Dewan Housing Finance Corp. Ltd (DHFL), which has a debt of ₹83,873 crore, to the National Company Law Tribunal (NCLT) for insolvency proceedings.
“The Reserve Bank has today filed an application for initiation of corporate insolvency resolution process against DHFL under Section 227 read with clause (zk) of sub-section (2) of Section 239 of the Insolvency and Bankruptcy Code (IBC), 2016 read with Rules 5 and 6 of the Insolvency and Bankruptcy Rules, 2019,” the central bank said in a statement.
R Subramaniakumar, the Rbi-appointed administrator for DHFL, will now manage the mortgage lender’s affairs.
DHFL is the first financial services company to be sent to the bankruptcy tribunal after the government notified the rules for referring financial services providers (FSPS) on November 15.
Unlike insolvency proceedings for companies from other sectors, an FSP creditor or debtor cannot approach the tribunal—the firm has to be referred by a regulator.
“It is likely that this model will be followed for other nonbanking financial companies (NBFCS) as well because currently there is a lot of discussion about other NBFCS not being in a position to meet their debt servicing obligations,” said Tine Abraham, partner, Trilegal.
This could be a useful tool for the RBI to ensure timely resolution for large NBFCS with signif
R SUBRAMANIAKUMAR, THE RBI-APPOINTED ADMINISTRATOR FOR DHFL, WILL NOW MANAGE THE MORTGAGE LENDER’S AFFAIRS
icant public investments, Abraham added.
Under the new powers granted to the RBI in the Union budget, it can take over administration of privately held financial services companies. It can also remove auditors, call for an audit of any group company, and have a say on the compensation of the top management of an NBFC.
On November 22, the RBI set up a three-member advisory committee— comprising Rajiv Lall, non-executive chairman, IDFC First Bank Ltd; NS Kannan, managing director and chief executive officer (CEO) at ICICI Prudential Life Insurance Co. Ltd, and NS Venkatesh, CEO of the Association of Mutual Funds in India—to assist Subramaniakumar in order to ensure that the debt-laden company’s asset quality does not worsen. This came after its decision to supersede DHFL’S board on November 20.
Subramaniakumar is the former managing director and CEO of Indian Overseas Bank,
According to the RBI order cited by DHFL in a November 20 regulatory filing, a statutory inspection of the mortgage lender conducted by the National Housing Bank with reference to its position as of March 31, 2018 revealed serious deterioration in its finances.
In September, the RBI also superseded the board of Punjab and Maharashtra Co-operative Bank Ltd, appointing Jai Bhagwan Bhoria as its administrator.
According to the new FSP insolvency rules, an interim moratorium will start from the date of filing of the application till its admission or rejection.
DHFL had public deposits of ₹6,188 crore as on July 6, down from ₹10,166.72 crore as on March 31, 2018.
Its total debt stood at ₹83,873 crore, of which ₹38,342 crore was owed to banks.