Auditors clear DHFL of CobraPost allegations of Rs31,000-cr fund diversion

An independent audit carried out on Dewan Housing Finance Corporation Ltd (DHFL) has cleared the housing finance company of allegations of fund diversion by its primary promoters.

News portal CobraPost had accused the company’s promoters of siphoning off more than Rs31,000 crore of public money to shell companies acting as borrowers and that it had perpetrated tax fraud. 
CobraPost had also alleged that promoters concealed their shareholding and resorted to insider trading and that there was inadequate monitoring in respect of 15 large borrowers and certain instances of deviations and non-adherence to loan sanctioning norms.
However, the audit report by chartered accountants firm TP Ostwal & Associates LLP has raised several red flags, including significantly inadequate monitoring in respect of 15 large borrowers and certain instances of deviations and non-adherence to the terms of sanction of loans.
The independent auditor's report on the allegations by news portal CobraPost against DHFL has concluded that it has neither sanctioned/disbursed loans to 40 entities aggregating Rs10,304 crore nor promoted any of the alleged 26 "shell" companies that are borrowers.
The report, however, has indicated "significantly inadequate" monitoring in respect of 15 borrower accounts (loans aggregating Rs7,385 crore) and highlighted that with the finance committee comprising mostly promoter-directors, it "can be said to have significant influence" on sanctioning loans over Rs200 crore, Also, risk management has been poor and there was little ongoing monitoring of compliance.
On 29 January 2019, CobraPost in a report accused the primary promoters of DHFL of siphoning off more than Rs31,000 crore of public money through secured and unsecured loans and advances to shell companies, round tripping, tax avoidance and insider trading.
The audit firm, in its report which was placed before DHFL's audit committee on Wednesday, observed that no loans were sanctioned/ disbursed by DHFL during the review period (April 2015 to December 2018) to the 40 entities (aggregating Rs10,304 crore) referred to by CobraPost.
In the case of 4 entities, project loans disbursed (aggregating Rs2,365 crore against the news portal's figure of Rs2,211 crore) have been repaid up to December-end 2018.
Underscoring that most of the allegations pertain to loans extended to entities engaged in projects under the Slum Rehabilitation Authority (SRA), the auditors said DHFL sanctioned loans to 15 SRA projects aggregating Rs7,485 crore (CobraPost's said this number was Rs7,525 crore). Loans sanctioned for other projects was Rs3,475 crore (Rs3,997 crore).
The audit firm said the company has not promoted any of the alleged 26 "shell" companies that are borrowers. Further, it does not have any directors in common, including members from the promoter group, with any of these alleged "shell" companies and the company or promoters do not have any shareholding in these entities, nor are these entities shareholders of the company.
Accordingly, there are no indications to confirm the allegations that the company has created shell companies to divert funds, the report added. “We were unable to find evidence to support the allegations that the promoters have concealed shareholding in the company neither did we find any evidence to support the allegation of insider trading,” said the report.
The auditors said certain lapses and departures from the SOPs (standard operating procedures) and policies laid by the company have been identified. These lapses, point to deficiency in the adherence with the policies in several instances - the risk of which needs to be examined by the company, it added.