The Reserve Bank of India sprang a surprise on lenders to Dewan Housing Finance Corp. Ltd (DHFL) by superseding its board on Wednesday, four bankers aware of the matter said, even as these bankers were meeting to craft a rescue plan for the troubled lender.
The central bank also named an administrator to run the shadow lender under its newly acquired powers, worried that a delay might lead to further deterioration of DHFL’s assets and hurt a planned bankruptcy resolution, the people cited above said on condition of anonymity.
“Most of DHFL lender banks were huddled in a meeting on Wednesday at SBI Capital Markets’ office in Cuffe Parade in South Mumbai since afternoon," said one of the four bankers cited above.
“The lenders were discussing the next course of action leading to DHFL’s referral to insolvency by RBI when the statement came," this person said.
The appointment of the administrator, R. Subramaniakumar, a former managing director and chief executive of Indian Overseas Bank, comes as a prelude to referring the debt-laden mortgage lender to a bankruptcy court.
According to the people cited above, RBI’s Wednesday evening move came after a meeting with top DHFL executives, who had turned up with a revised resolution plan.
While the details of what transpired at the meeting could not be ascertained, the people said central bank officials expressed serious concern on the situation of over 100,000 fixed deposit holders of DHFL, many of whom are yet to receive their money even after their deposits matured.
“Under the previous plan, a staggered 10-year payout to public depositors with zero interest was proposed. The new plan, however, proposes that they are paid when deposits mature, in line with what the company said at the Bombay high court," said one of these people.
Emails sent to RBI and DHFL remained unanswered till press time.
While expectations of an RBI intervention had increased since 15 November when the government notified a special window for insolvency proceedings against stressed financial services providers, it was largely believed that the RBI action would follow only after a formal request from the lenders.
Led by Union Bank of India, lenders were working on a resolution plan for DHFL under which they were to convert a part of the debt into equity and take a 51% stake in the mortgage lender.
However, DHFL has also been dragged to the Bombay high court by a set of mutual funds that had purchased its non-convertible debentures (NCDs).
There are also fixed deposit holders and retail NCD holders seeking to recover their dues. SBI Caps, which was advising banks on a resolution plan, is expected to advise them on the upcoming insolvency proceedings as well.
Under its new powers, the RBI can take over administration of financial services companies other than those owned by the government. It can also remove auditors, call for audit of any group company of an NBFC and have a say over the top management compensation.
On Wednesday, DHFL informed the Bombay high court that it intends to repay its depositors and sought modifications to an earlier order that restricted them from doing so. The court has adjourned the case for hearing on 28 November.