The resolution of Dewan Housing Finance Corporation (DHFL) is an acid test for Indian banks, mutual funds, insurance companies, Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) and the government itself. It is the second big non-banking finance company (NBFC) to require restructuring after IL&FS. Both companies have loan book of around Rs 1 lakh crore each. While IL&FS resolution is being spearheaded by a special board led by banker Uday Kotak and supervised by the National Company Law Tribunal, lenders are seeking to resolve DHFL among themselves under RBI's June 7 circular.
CNBC-TV18 has reliably learnt that the company's proposed resolution plan requires restructuring of loans, extension of repayment tenors, some moratorium on some loans and fresh loans to complete commitments to some borrowers. Bankers say come private equity companies like Aion Capital may be interested in coming in with some money to buy a stake, other funds may be interested in buying part of loan book.
Also Read: DHFL to present resolution proposal to its lenders today
However, resolving DHFL is not so simple. Firstly going by the latest result of the company, auditors are unsure about the quality of over Rs 35,000 crore or 40 percent of the loans. This leads to questions such as how much of the loan is bad, who decides how much is bad, how much can be salvaged and who takes the haircut and how much. Should those who want their money back first be given a larger cut? If yes, again, how much?
The second question is who decides. The bankers have signed an inter-creditor agreement. But even if all bankers agree to a haircut or an extension, they account for only 40 percent of the loans. The remaining is accounted for by mutual funds, LIC, other insurance companies, pension funds, corporate treasuries and thousands of retail investors in DHFLs debentures and deposits. How can all these lenders be given a voice? How?
The third question is on the involvement of the promoter. While in a non-financial company it is best to change the promoter, in a financial company, the promoter, especially if he has siphoned some money or lent to related parties, may be glad to leave but lenders may want him to stay and take responsibility, but under the control of a board appointed by the lenders.
We posed all these questions to former Sebi ED and promoter of Finsec Law Advisors Sandeep Parekh, former deputy MD of SBI Sunil Srivastava and Head of Fixed Income at Mirae Global Investments Mahendra Jajoo, who spoke on behalf of mutual funds.The experts were divided on whether to just sell off the good loans and let lenders absorb losses of the bad loans or to work towards keeping the company going. What they were agreed on is the regulators RBI, Sebi, Irda and may be the Finance Ministry and the Corporate Affairs Ministry need to sit together and hammer out a template to resolve all stressed finance companies.