DHFL is set to become the first non-bank lender
DHFL is set to become the first non-bank lender

RBI moves swiftly on DHFL, institutes 3-member panel

  • On 20 November, RBI superseded the board of DHFL and appointed an administrator in its place
  • The advisory panel comprises IDFC First’s Rajiv Lall, ICICI Pru’s N.S. Kannan and Amfi’s N.S. Venkatesh

MUMBAI : The Reserve Bank of India, bolstering its role as a financial services regulator, set up a three-member advisory committee on Friday to assist the administrator it has appointed for Dewan Housing Finance Corp. Ltd (DHFL) to ensure that the debt-laden company’s asset quality does not worsen any further.

On Wednesday, the RBI superseded DHFL’s board and said it will refer the mortgage lender to the National Company Law Tribunal (NCLT).

Graphic by Santosh Sharma/Mint
Graphic by Santosh Sharma/Mint

In a statement, the RBI said the advisory committee—comprising Rajiv Lall, non-executive chairman, IDFC First Bank Ltd, N.S. Kannan, managing director and CEO at ICICI Prudential Life Insurance Co. Ltd, and N.S. Venkatesh, chief executive of the Association of Mutual Funds in India—will work closely with DHFL administrator R. Subramaniakumar.

Subramaniakumar, the former managing director and chief executive of Indian Overseas Bank, will manage DHFL’s affairs once it is admitted to the NCLT under the revised Insolvency and Bankruptcy Code (IBC) for financial service providers.

The central bank’s initiative seeks to secure the interests of creditors, including over 100,000 fixed deposit holders of DHFL, as a delay in resolution can lead to a rise in slippages and higher non-performing assets for the HFC, which stopped lending a few months ago.

While the 15 November change in IBC regulations mandated the appointment of an advisory committee within 45 days of the commencement of insolvency proceedings, the RBI, in this case, is trying to fast-track the process for a quick resolution.

The revised guidelines were part of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.

The RBI is now set to move the NCLT for appointing the administrator as the insolvency resolution professional. Subsequently, the resolution professional will chair the meetings of the advisory committee once the insolvency process starts. The compensation for the members of the committee will be part of the costs of the insolvency process.

According to Karan Mitroo, partner of law firm Luthra and Luthra, financial services is a specialized field and its problems are industry-specific. “Hence, the committee members, who are adept in running financial services providers, have been appointed with the intent that their wisdom and experience is used to run the operations of the company as smoothly as possible."

DHFL is the first non-bank lender to be referred to the NCLT, after the RBI superseded its board following concerns over poor governance practices and payment defaults.

The RBI sprang a surprise on DHFL’s lenders on Wednesday, when it superseded its board. In fact, four bankers told Mint, a majority of DHFL’s lenders were in a meeting at SBI Capital Markets’ office in Cuffe Parade in South Mumbai, when they came to know about the RBI’s move.

Under its new powers, the RBI can take over administration of privately-held financial services companies. It can also remove auditors, call for an audit of any group company and have a say on the compensation of the top management of an NBFC.

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