DHFL’s woes mount as forensic audit unearths diversion of funds

“There was diversion to third-party private entities running into large sums," one of the three people cited above said on condition of anonymity. Mint could not ascertain the quantum of diversion, but a report published on the Moneylife website said that it was to the tune of ₹20,000 crore.

The forensic audit was initiated by DHFL’s lenders in February, said a senior banker involved in the resolution process. “We haven’t seen the report yet, but we understand that there are gaps in the assessment of the projects against which DHFL has lent," the banker said.

The new disclosures could put the proposed debt restructuring of the non-bank lender in jeopardy. One of the proposals of the draft debt resolution plan envisages conversion of bank loans into a 51% equity stake for the lenders, with the promoters retaining some stake. If the findings of the forensic audit are proven true, banks may push for a change in management.

As of 6 July, DHFL’s debt stood at ₹83,873 crore, of which ₹38,342 crore is owed to banks. Mutual funds have marked down their exposure by 70%.

A spokesperson for DHFL did not reply to an email seeking comments on the forensic audit. A KPMG spokesperson declined to comment.

In the March quarter earnings, both the company’s auditors pointed out “documented deficiencies in the grant and rollover of some of its ICDs" (inter-company deposits) which the firm had explained as “loans extended as part of regular business activity". In August, one of them, Deloitte Haskins and Sells, quit citing certain unsatisfactory responses from the company to their queries related to fund deployment.

“There are documentation deficiencies with respect to grant/rollover of ICDs which are being rectified. The ICDs have been advanced towards regular business activities and was either extended as a temporary loan pending full valuation of project funding or short term corporate requirements," DHFL said in its March quarter results. On Saturday, the ED conducted searches at 14 premises of DHFL and its associate firms. The searches were in relation to money laundering case in a land deal involving drug lord Iqbal Mirchi.

“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," said a person aware of thinking of DHFL.

"The resolution plan was accepted by the bankers' consortium and the ICA was signed by all banks. Then the banks appointed a steering committee of seven banks to take the final resolution plan to all lenders for consent and execution. The company is committed towards working with their lenders on the debt resolution plan," he added.

Shayan Ghosh contributed to this story.