DHFL In More Trouble As Auditor Reports Fraud Of Rs 2,150 Crores

In July, 2019, the Corporate Affairs Ministry proceeded with investigations into reports of siphoning of Rs 31,000 crores by Dewan Housing Finance Corporation Limited (DHFL) through its shell companies, as alleged by Cobrapost. Analysts maintain that this could have significant ramifications on the sector, given that DHFL is heavily into housing construction loans, real estate financing, SME loans, loan against property, etc. It also came to light that when the company sold its stake in Pramerica Life Insurance Ltd to DHFL Investments Ltd (DIL), a Rs 2,150.84 crore-fraud owing to undervalued and fraudulent nature of certain agreements surfaced, as reported by auditor Grant Thornton. Currently, DHFL is undergoing a resolution process under the Insolvency and Bankruptcy Code.

On October 8, 2020, the Economic Offences Wing of the Tamil Nadu Police arrested the promoters of DHFL, Kapil Wadhawan and Dheeraj Wadhawan, on allegations of defrauding investors of their money by floating bogus schemes, and non-repayment of Rs 218 crores of collected deposits.

The number game

Liquidity-starved DHFL has also sought Rs 15,000 crores funding from banks to be able to lend to its retail customers and developers. However, the company might find it difficult to raise funds at a time when its image has taken a severe beating.

DHFL has restricted lending, and this, analysts say, does not go well with the reputation of a non-banking finance company (NBFC). Till January, 2019, fresh loan disbursements by DHFL had plummeted by 95 per cent. Besides incurring losses to the tune of Rs 1,036 crores and liabilities estimated at Rs 755 crores as on March 31, 2019, DHFL has been reduced to a ‘default grade’ according to credit rating agencies.

On August 8, 2019, DHFL also informed the stock exchanges that it might not be able to meet its financial obligations in the near future.

The Bombay High Court, on November 7, 2019, restrained Dewan Housing Finance Corporation Ltd (DHFL) promoters Dheeraj Wadhawan and Kapil Wadhawan from leaving the country, after a petition was filed by 63 Moons Technologies, seeking recovery of dues of Rs 200 crores from the embattled entity. The court posted the plea for further hearing on November 14, 2019.

The wrong turn of events

In a revelation that indicated the deepening crisis in the housing finance sector, India Ratings has said that the National Housing Bank (NHB), the government-run agency that promotes housing finance institutions in the country, has a huge exposure to crisis-ridden Dewan Housing Finance Ltd (DHFL) and Punjab & Maharashtra Cooperative Bank. "NHB's exposure in DHFL and PMC stood at Rs 24.35 billion and Rs 1.75 billion, respectively, at end-March 2019," the rating agency said.

Recently, trouble-hit DHFL added another Rs 1,571 crore to its list of defaults, in connection with issuance of bonds and commercial papers. As the news became public, company shares tanked eight per cent on August 20, 2019. Problems started erupting for the 35-year-old NBFC, when it defaulted on repayments amounting to nearly Rs 90,000 crores. This default happened at a time when DHFL's lenders, including State Bank of India (SBI), Bank of Baroda (BoB) and Union Bank of India (UBI), are in the final leg of coming up with a three-level resolution plan. Conversion of debt into equity and rolling out of fresh loans, are among the measures that the DHFL lenders might use to get the company out of trouble.

Homebuyers' woes

Borrowers, who are already servicing their loans with the embattled lender, have been impatiently waiting for a final resolution plan that might put an end to their worries. In case a favourable resolution is not worked out, these borrowers would have to switch to a new lender. In such a scenario, getting their original property papers that are lying with DHFL currently would also turn out to be a cumbersome task.