Mumbai: The Reserve Bank of India (RBI) on Wednesday superseded the board of Dewan Housing Finance Corp Ltd (DHFL) and appointed an administrator in its place, a step towards referring the company to the National Company Law Tribunal (NCLT).
The central bank appointed R. Subramaniakumar, former managing director and chief executive of Indian Overseas Bank (IOB), as the administrator. This would be the first housing finance company (HFC) that is on the path to bankruptcy tribunal under new rules notified on 15 November.
“In exercise of the powers conferred under Section 45-IE (I) of the Reserve Bank of India Act, 1934, the Reserve Bank of India has today superseded the Board of Directors of Dewan Housing Finance Corporation Limited (DHFL) owing to governance concerns and defaults by DHFL in meeting various payment obligations," the regulator said in a statement.
RBI also said that it 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. It added that it would also apply to the NCLT for appointing the administrator as the insolvency resolution professional.
Under the new guidelines, only a regulator can refer a financial services provider to the bankruptcy tribunal. Moreover, instead of insolvency resolution professionals typically appointed for companies in NCLT, only an administrator proposed by the regulator and appointed by the tribunal will take over the management of the company.
In September, RBI had also superseded the board of crisis-hit Punjab and Maharashtra Cooperative (PMC) Bank Ltd. and appointed Jai Bhagwan Bhoria as the administrator of the bank.
A banker at a state-run bank said that lenders were expecting this to happen anytime and it would certainly lead to quicker resolution of DHFL’s stress. “It was quite evident that the new rules would help resolve stress in the financial sector companies and since DHFL is at the epicentre of these troubles, the RBI has likely decided to take it up first," he said.
Mint reported on 20 November that DHFL is likely to be the among the first set of financiers to land up in bankruptcy courts. A government notification on 15 November has brought financial firms under the Insolvency and Bankruptcy Code (IBC), provided they have assets of at least ₹500 crore, and that the central bank makes the bankruptcy reference.
Lenders were earlier working on a resolution plan for DHFL under which they were to convert a part of the debt into equity and take a 51% stake in the mortgage lender. However, DHFL has also been dragged to the Bombay high court by a set of mutual funds that had purchased its non-convertible debentures (NCDs). There are also fixed deposit holders and retail NCD holders seeking to recover their dues.
On Wednesday, DHFL informed the Bombay high court that it intends to repay its depositors and sought modifications to an earlier order that restricted them from doing so. The court has adjourned the case for hearing on 28 November.
Appearing on behalf of DHFL, senior advocate Aspi Chinoy said that DHFL has the ability to repay depositors. He added that the company received a directive from the National Housing Bank (NHB) about two weeks ago advising it to seek modification of the high court order.
The Bombay high court on 10 October barred DHFL from making any payment to unsecured creditors, which included deposit holders. A modified order on 13 November that allowed DHFL to make payments in lieu of securitization deals did not bring any relief for the FD holders. As on 6 July, DHFL had public deposits of ₹6,188 crore, down from ₹10,166.72 crore at the end of March 2018. Its total debt stood at ₹83,873 crore, of which ₹38,342 crore was owed to banks
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