Mumbai: About 25 group companies to which Dewan Housing Finance Corp. Ltd (DHFL) had lent a total of 14,000 crore had an average profit of about 1 lakh, a forensic audit of the company has found, raising suspicion that the mortgage lender may have diverted funds.

Out of the around 27,000 crore worth of loans raised by DHFL from banks for on-lending to home buyers, around 10,050 crore was invested in mutual funds, the findings of the audit revealed.

The draft report of the audit was shared with the members of DHFL’s committee of creditors (CoC) last week and will be presented to the board of the mortgage lender once it is finalized.

Mint has reviewed parts of the 90-page report prepared by accounting firm KPMG.

The findings of the forensic audit, initiated by the lenders of the debt-laden home financier, can potentially scupper a proposed debt restructuring plan aimed at reviving DHFL. It may also prompt lenders to the company to push for a change in the management of the Wadhawan family-run company.

“The resolution process may now take a different direction. The system will have to spend its energies and bandwidth in investigating the matter. It is important that in the midst of all of that, we do not forget the resolution and asset recovery," said Ashwin Parekh, managing partner at Ashwin Parekh Advisory Services.

The forensic report showed that current outstanding loans and ICDs (inter-corporate deposits) to these 25 entities from DHFL totalled 13,000 crore.

Interestingly, loans of 7,000 crore to 15 such companies were not classified as non-performing assets (NPAs) by DHFL despite their repayments being overdue. KPMG also said it has found that these group companies had invested 4,000 crore in purchasing preference shares of some other entities.

As of 6 July, DHFL had a debt of 83,873 crore, of which 38,342 crore is owed to banks.

The report found that some of the related-party transactions undertaken by DHFL were not approved by its audit committee.

Emails sent to DHFL and KPMG remained unanswered till the time of going to press.

However, a person close to DHFL said, “Lenders had appointed various firms to conduct due diligence across various streams including accounts, wholesale book valuation, title search of loans, legal diligence as a part of the resolution plan. The banks appointed a steering committee of seven banks to take the final resolution plan to all-lenders for consent and execution."

(Graphic: Paras Jain/Mint)
(Graphic: Paras Jain/Mint)

In a related development, the Enforcement Directorate (ED) has also begun a parallel probe on DHFL’s loans to real estate firm Sunblink Real Estate, which is alleged to have links with drug trafficker Iqbal Mirchi.

“In light of the above developments, the proposed resolution plan of DHFL may run into serious trouble," said a banker aware of the audit report.

In August, DHFL said its draft resolution plan submitted to lenders spares creditors from having to take haircuts on principal payments.

Lenders are currently assessing the resolution plan under Reserve Bank of India’s (RBI) 7 June circular on resolution of stressed assets.

According to the RBI circular, 75% of lenders by value of the total outstanding credit facilities to a stressed company and 60% by number must agree for an inter-creditor agreement to be binding on all lenders.

On 19 October, the ED conducted searches at 14 premises of DHFL. The searches were in relation to a case of money laundering in a land deal involving Mirchi.

Mint reported on 19 October that DHFL had allegedly given loans to the tune of 2,100 crore to Sunblink over nine years.

In a regulatory filing on 18 October, DHFL said: “…in the normal course of its business", it “has funded certain projects of various companies which were executed in and around Mumbai. The dues of 2,186 crore comprise the principal amount and the interest payable on the principal sum. On account of certain corporate actions undertaken with/by Sunblink, as on date, Sunblink is mentioned as a borrower. The amounts were never lent to Sunblink as alleged in the media."

Meanwhile, the mortgage lender said in the notes accompanying its unaudited March quarter results on 13 July that there are documentation deficiencies with respect to grant and rollover of ICDs are being rectified.

It said that in respect of certain project and mortgage loans, the management is actively engaged with the loanees to remediate certain lacunae in loan documentation.This exercise was expected to be completed by September.

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