RBI bans DHFL from taking deposits under Pirmal management

Mumbai: The Reserve Bank has revoked the deposit-taking status of Dewan Housing Finance (DHFL), the first financial services firm to go for bankruptcy proceedings, and has reclassified it as a non-deposit taking housing finance company, before approving the Piramal group’s bid to take over it towards the end of the resolution process.

The revelation comes in the June 7 NCLT Mumbai order that has approved the Rs 35,250-crore bid for the once second largest mortage lender by Piramal Capital & Housing Finance, forcing over 65% haircut on the creditors and just Re 1 to its NCD holders to whom it owes more than Rs 45,000-crore.

On the 14th page of the 86-page NCLT order by HP Chaturvedi and Ravikumar Duraisamy, it says DHFL no longer is a deposit-taking NBFC but a non-deposit taking one.

The changes were made in February 2021, after the RBI gave a non-objection to the January 25, 2021 application by R Subramaniakumar, the DHFL administrator, citing Rule 5 of its FSP (financial services providers) Rules.

“Pursuant to the FSP Rules, the RBI communicated its ‘no objection’ on February 16, 2021 for change in control/ownership/management in DHFL in terms of Rule 5(d)(iii) of the FSP Rules and also in terms of para 3 of NHB circular – housing finance companies — approval of acquisition or transfer of control Directions, 2016, subject to (inter alia) the condition that the deposit-taking status of DHFL will be revoked and merged entity of DHFL and Piramal Capital shall function as a non-deposit taking housing finance company,” says the NCLT order.

In the concluding part of the order, the bench reiterates that the resolution is subject to the fact that RBI’s non-objection, which is based on the condition that “the status of the corporate debtor (DHFL) is changed from a deposit-taking housing finance company to a non-deposit-taking housing finance company”.

It can be noted that DHFL became the first financial services entity to be referred to the NCLT for bankruptcy, when the RBI on November 20, 2019 superseded the DHFL board and appointed Subramaniakumar as its administrator.
The company went down under after its promoters allegedly siphoned of public funds and defaulted on its debt repayments worth over Rs 95,000 crore to 21 banks and tens of thousands of depositors.

More than 55,000 retail and institutional investors hold Rs 5,375 crore worth of fixed deposits in DHFL. The Rs 3,5250-crore bid by the Piramal group was approved by the committee of creditors on January 15, 2021.

The government had to amend the RBI Act and notify a section of the bankruptcy code to enable the RBI to send DHFL to the NCLT under Section 45-IE(2) of the RBI Act which deals with governance concerns and defaults.

Two days superseding its board the RBI on November 22, under Section 45-IE 5(a) of the RBI Act, constituted a three-member advisory committee under Rajiv Lall, non-executive chairman of erstwhile IDFC First Bank, NS Kannan, managing director of ICICI Prudential Life, and NS Venkatesh, chief executive of the Mutual fund lobby Amfi to advise the administrator in the operations of DHFL during the resolution process.

The  NCLT admitted the case December 3, 2019 and cleared the process on June 7, 2021 as the whole process got delayed by the pandemic-driven lockdowns.

However, the DHFL case scored some unsual headlines when the Mumbai NCLT bench headed HP Chaturvedi and Ravikumar Duraisamy on May 26, 2021 had asked the committee of creditors to relook at the ready offer of over Rs 92,000 crore offer made by the Wadhawans, the original promoters of DHFL.

The order was stayed by appellate body NCLAT the very next day and on June 7, the final order approving the Piramal group bid, which is only a third of its dues, was issued.