Mumbai: The committee of creditors (CoC) to Dewan Housing Finance Corp. Ltd (DHFL) has approved a plan under which the mortgage lender will resume advancing home loans beginning with ₹500 crore a month to arrest the decline in its loan book.
A document from the central bank-appointed administrator showed DHFL is recovering ₹1,700-1,800 crore from past loans every month and, after setting aside money for securitization payments and operational expenses, it can restart disbursements of ₹500 crore per month. The company has not disbursed loans in more than six months, due to a liquidity crunch that also led to a series of defaults in repaying debt.
Mint has seen a copy of the document the administrator has shared with DHFL’s lenders.
At present, DHFL’s assets under management stand at ₹1,19,952 crore, of which ₹63,690 crore are in retail loans and the rest in wholesale.
However, the document does not mention any proposal to pump in any additional funds as sought by DHFL before it was referred to the National Company Law Tribunal. R. Subramaniakumar, the administrator appointed by the Reserve Bank of India (RBI), is concerned that the rapid decline in DHFL’s loan book will make it less valuable to potential investors. According to the document, the loan book is shrinking by 1.6-2% on a monthly basis and may shrink 10% over the next six months. DHFL’s loan book has contracted 25% since September 2018, it said.
“Since the objective is to preserve the enterprise value, this action is required to be taken. The CoC was in agreement with the said proposal," said the document, adding that DHFL’s credit and business risk processes were being reviewed by the process adviser and based on the reviews, disbursements would start. While consultancy firm EY is the process adviser to the administrator, AZB & Partners is in charge of legal services.
A banker at a state-run lender said the primary reason lenders agreed to the plan was to preserve the value of the company and keep it a going concern. “Unless new loans are disbursed, the value of the company will keep eroding and that will not give us desired results when potential investors look at the company," the banker said.
Meanwhile, to reduce operational cost, the administrator has decided to shut down DHFL’s two representative offices in Dubai and London.
Emails sent to Subramaniakumar and DHFL remained unanswered at the time of going to press.
Despite the CoC’s approval, doubts remain about the viability of fresh lending by the mortgage lender. Experts said that given large-scale attrition, it is to be seen how DHFL is able to get fresh boots on the ground, a necessity for healthy recoveries. “Restarting lending after such a long pause could bring its own set of challenges in terms of getting the right set of customers in the prevalent circumstances," said Prakash Agarwal, head of financial institutions at India Ratings and Research.
Meanwhile, since the insolvency resolution process was started, no payouts are being made, including dues to lenders who bought assets under securitization deals. According to the document, in the absence of any RBI notification, although end borrowers were making repayments, the money was not flowing to lenders. The administrator, the document said, has already made representations to RBI and suggested banks approach the regulator independently as well. To be sure, DHFL has been collecting payments from borrowers, but is unable to pay lenders. Once a loan is securitized, the originator (DHFL in this case) only acts as a collection agent for the buyer of the loan pool.
This is the second instance when lenders are unable to recover assets they bought from DHFL.
A Bombay high court order on 10 October had halted payments to unsecured creditors, but later allowed securitized loans to be repaid in a 13 November order.