MUMBAI : Lenders of Dewan Housing Finance Corp. Ltd (DHFL) are in the process of filing an application in the Bombay high court (HC) to protect the housing finance company’s borrowers from being classified as defaulters just because DHFL has been declared a defaulter, two people aware of the development said, requesting anonymity.

According to the people cited above, DHFL has been receiving repayments on schedule from its retail borrowers, but has not been able to use the proceeds towards paying the dues to its lenders.

As a result, DHFL’s retail borrowers were at risk of being declared defaulters in spite of making repayments.

The issue is about securitization of home loans, which involves pooling together of individual loans and selling the right to receive future payments from borrowers to a third party, which could include banks and investors.

The housing finance company (HFC) in return receives a consideration much before the actual maturity of the original loan. Then, the HFC continues to collect interest and monthly payment on these loans on behalf of the acquirer of the loans, and remit the amount after retaining its portion.

The Bombay high court has restrained DHFL from making any payment to its secured and unsecured creditors. Earlier, mutual funds, including Edelweiss Asset Management Co. and Reliance AMC, had filed separate pleas before the court seeking to recover their dues after the HFC defaulted on the non-convertible debentures (NCDs), which they had subscribed to.

Subsequently, on 15 October, rating agency Icra downgraded six securitized loan pools of DHFL. Icra said the ongoing legal proceedings against DHFL might impact its ability to transfer the pool collections into the respective collection and payout (C&P) accounts of the rated transactions in a timely manner.

“While the company continues to collect the monthly instalments from borrowers, it is not able to pay the banks, which would essentially result in the borrower being classified as a defaulter," said Rajkiran Rai G., managing director and chief executive officer, Union Bank of India.

“We have already had discussions with other lenders and we will be filing the intervention soon. We feel that asset management companies have acted impulsively in their own selfish interest, which has jeopardized the resolution process," he added.

According to lenders, DHFL had opted for securitization at the height of the liquidity crisis which had hit the non-banking financial companies last year. DHFL’s annual report shows that in the six months leading to 31 March, the company had securitized assets valued at over 15,630 crore and repaid liabilities of over 22,700 crore.

As on 6 July, the company’s total debt stood at 83,873 crore, of which 38,342 crore was owed to banks, and 45,061 crore to domestic bondholders.