29 June 2019: Lenders to the near-bankrupt Dewan Housing Finance (DHFL) may initiate a resolution process in line with the new stress assets resolution framework. Rajnish Kumar, chairman, State Bank of India (SBI), told FE on Friday it was now up to the lenders to decide on the resolution plan for DHFL based on the Reserve Bank of India’s June 7 circular on NPA resolution.
Meanwhile, the mortgage firm announced on Friday it was deferring the announcement of financial results for the March quarter to July13 citing ‘certain unforeseen operational engagements, including non-availability of a few directors’.
Given all lenders need to sign an inter-creditor agreement, or ICA, under which the resolution plan can be executed, the process may not be a smooth one, sources close to the matter said. Among the options that lenders have is to convert their loans into equity or even buy out the assets.
Money market experts say DHFL’s defaults expose lenders to both mark-to-market losses on bonds and to defaults or haircuts on loans. Some believe there could be a contagion effect. On Thursday, RBI noted that the failure of a large non-banking financial company could be as bad for the ecosystem as the failure of a big bank.
The mortgage financier has been unable to pay lenders on a couple of occasions inJune. On June 4, DHFL defaulted on interest payment of Rs 850 crore on its non-convertible debentures (NCDs), following which its credit rating was downgraded to default by rating agencies. Earlier this week, it defaulted to a clutch of 13 lenders and was able to only make a part payment of Rs 150 crore of the total dues of Rs 375 crore. The consortium of banks has not yet classified the exposure as a non-performing asset (npa). However, their loans of close to Rs 45,000 crore, about half the company’s total outstandings of close to Rs 1 lakh crore, appear to be in trouble.SBI is the largest lender to DHFL with an exposure of nearly Rs 10,000 crore, the bank told its shareholders during its annual general meeting (AGM).
DHFL is in the process of selling down its loan assets, including wholesale project loans; it has raised funds over the past few months — securitising retail loans worth Rs 30,000 crore. The lender also sold Rs 1,375 crore worth of wholesale loans to foreign investment management firm — Oaktree which buys distressed debt at a discount. DHFL had short-term borrowings of Rs 8,812 crore in FY18, which were twice as much as the Rs 4,268 crore in the previous fiscal, according to its annual report.