The lenders are now preparing the resolution plan for DHFL under RBI’s new framework for resolution of stressed assets
On 30 August, DHFL had said its board approved the plan to convert the whole or part of its debt into shares
Mumbai: The resolution of Dewan Housing Finance Corp. Ltd (DHFL) will get a fillip if the government takes charge of the process under Section 227 of the Insolvency and Bankruptcy Code (IBC), said the chief executive of a bank, part of the lenders’ consortium.
The banker, who did not wish to be identified, said that he has already spoken to legal experts who suggested that use of Section 227 will be beneficial for the lenders and well as DHFL.
“The resolution plan is being finalised and if the government takes charge of it, we can expect all things to fall in place much faster," he said.
The banker added that since some of the bondholders of DHFL have initiated the process of moving the debt recovery tribunal (DRT), the resolution might suffer a setback.
The Economic Times reported on Monday that the government is looking to avoid a spillover effect in the economy that may be caused by DHFL’s troubles.
According to section 227 of IBC, the central government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed.
On 30 August, DHFL had said its board approved the plan to convert the whole or part of its debt into shares, besides allowing it to increase the authorized share capital from ₹828 crore to ₹1,090.39 crore. Earlier in August, DHFL had said that its draft resolution plan, which was submitted to the lenders, spares creditors from having to take haircuts on principal payments.
The lenders are now preparing the resolution plan for DHFL under the Reserve Bank of India’s new framework for resolution of stressed assets released on 7 June. According to the central bank’s circular, 75% of lenders by value of the total outstanding credit facilities to a stressed company, and 60% by number must agree for an inter-creditor agreement which will be binding on all lenders.