RBI forms advisory committee to assist DHFL in bankruptcy proceedings

The mortgage lender, facing a cash crunch since last year after banks choked lending, has overall debt of ₹80,000 crore.

The resolution plan includes debt restructuring, to pave the way for a new investor to pick up stake. Reuters

 

The Reserve Bank of India (RBI) has formed a three-member advisory committee to assist the administrator of troubled mortgage lender DHFL.

Rajiv Lall, Non-Executive Chairman, IDFC First Bank Ltd; N.S. Kannan, Managing Director and CEO, ICICI Prudential Life Insurance Co. Ltd; and N.S. Venkatesh, Chief Executive, Association of Mutual Funds in India, are part of the advisory committee

Earlier the RBI had superceded the Board of the home financier and appointed former MD&CEO of Indian Overseas Bank, R Subramaniakumar, as the Administrator.

 

“The Reserve Bank, in exercise of powers conferred under section 45 IE 5(a) of the RBI Act 1934, has today constituted a three-member Advisory Committee to assist the Administrator of DHFL in discharge of his duties,” the central bank said in a statement.

The RBI has also said process will be initiated for bankruptcy proceedings for DHFL, which has defaulted on bank loans.

The DHFL could be the first financial services company to face insolvency proceedings at the National Company Law Tribunal (NCLT) after the government, on Monday, issued a notification specifying the categories of financial service providers that can be taken up for resolution under the generic framework of the Insolvency and Bankruptcy Code. Till now, financial services firms were kept out of bankruptcy proceedings.

The mortgage lender, facing a cash crunch since last year after banks choked lending, has overall debt of ₹80,000 crore. Banks have exposure of ₹40,000 crore to the company. While efforts were made by banks for resolution, the process hit a roadblock as markets regulator SEBI did not allow mutual funds having exposure to DHFL to be a part of the resolution plan. Banks wanted to execute a plan in which all lenders to DHFL were involved. Efforts to change promoters’ control by selling significant promoter stake was also not successful.

Banks had begun to classify loans extended to DHFL as ‘non-performing’ indicating bleak chances of a resolution. ICICI Bank, Union Bank of India, Central Bank of India and UCO Bank are some lenders that have classified the loans as NPAs. If DHFL is admitted for insolvency, banks will have to increase provisioning for the account to 50%, as in the case of other insolvency proceedings. This will hurt banks’ profitability to a large extent.

SBI has an exposure of ₹7,000 crore and has already provided for ₹1,400 crore till the end of September.