MUMBAI : More than 100,000 fixed deposit holders of Dewan Housing Finance Corp. Ltd (DHFL) risk losing their savings as allegations of fraud and fund diversion grip the mortgage lender.

Instances of fund diversions, as revealed in a forensic audit by accounting firm KPMG, could potentially derail a resolution plan for DHFL that has been in the works for several months. The revelations have come as a setback for DHFL’s lenders, primarily commercial banks that have an exposure of 38,342 crore to the finance company, as the government could initiate a probe by the Serious Fraud Investigation Office (SFIO). If SFIO starts an investigation, all repayments are likely to be frozen.

Under the proposed debt recast plan, lenders were to take a 51% stake in DHFL by converting a portion of the company’s debt into equity. This plan is being finalized under the 7 June stressed asset circular of the Reserve Bank of India.

The fixed deposit holders, many of them retirees who had invested their lives’ savings, were among the first in line to be paid back their money. As on 6 July, the company had public deposits of 6,188 crore, which fell from 10,166.72 crore at the end of March 2018. On 21 May, DHFL stopped accepting public deposits and renewals of existing deposits. It also stopped premature withdrawals of existing deposits to “help reorganize its liability management".

“I invested the bulk of my retirement kitty in DHFL fixed deposits," Vinay Mittal, a resident of Ghaziabad, said in a phone interview. “My financial adviser pointed to the AAA status of the company and its 25-year history. I had, in fact, been investing in DHFL fixed deposits for more than a decade and they had paid back all that in time. So, there was no reason to suspect that things would go this way."

Small savers, big worries
Small savers, big worries

According to a letter from the company that Shikha Patel, daughter of depositor Manjulaben Patel, shared with Mint, the company informed her that it was unable to pay her money back as it was bound by a 30 September Bombay high court order that disallowed all payments to fixed deposit holders without its permission.

While stopping premature deposit withdrawals, DHFL had promised in May to redeem fixed deposits in case of a medical or financial emergency, subject to fulfilment of appropriate documentation. However, there are also cases where premature withdrawals on health grounds have not been accepted by the company.

For instance, 75-year-old Kumkum Chakraborty, a cancer patient, submitted two applications, one in July and the other in September, seeking premature withdrawal of her 14 lakh deposit. Her son Ishan Chakrabarty said on the phone that she was yet to receive any money. Her deposit will mature in April 2022.

“It’s harsh that senior citizens like my mother are suffering with no means of redressal," said Ishan Chakrabarty.

Meanwhile, the draft debt resolution plan, being finalized by lenders, proposes a staggered 10-year payout to public depositors with zero interest. However, depositors’ hopes of a quick approval of the resolution plan have all but sunk with the KPMG forensic audit finding possible diversion of funds and an impending SFIO probe.

Once the investigative agency takes up the case, the proposed debt recast plan will take a back seat because it is unlikely that both can run simultaneously, said the chief executive of a public sector bank. “We will have to wait for the investigation to be over for implementation of any resolution plan. Only if the SFIO finds that there was no mala fide intent on part of the promoters can the restructuring deal work," the banker said on condition of anonymity.

DHFL’s fixed deposit holders, who do not have recourse to the debt resolution tribunals like bondholders who are better organized, are among the worst affected. To be sure, a depositor can still file a civil suit for recovery of the deposit. He can also send a complaint to the consumer forums set up under the Consumer Protection Act, 1986.

Sandeep Parekh, partner at Finsec Law Advisors, said that since DHFL’s fixed depositors are unsecured creditors, they are behind secured non-convertible debenture holders like some mutual funds.

“Even if they file an FIR against the company and its officers under Section 76A of the Companies Act, 2013, which provides for imprisonment up to seven years in case of non-repayment of deposits, this will not necessarily improve their position in the seniority of creditors," said Parekh.

That apart, National Housing Bank (NHB), the regulator of housing finance companies, can take remedial action in case of defaults. NHB can impose financial penalties and file winding up petition against such companies.

An email sent to DHFL remained unanswered till the time of going to press.

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