RBI takes over administration for DHFL, to initiate bankruptcy proceedings soon
21 November 2019
The Reserve Bank of India on Wednesday announced the appointment of a new management board for Dewan Housing Finance Corporation Limited (DHFL) superseding its board of directors amidst governance concerns and defaults by DHFL in meeting various payment obligations.
RBI on Wednesday appointed R Subramaniakumar, ex-MD and CEO of Indian Overseas Bank, as the administrator of DHFL and announced that it would shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the NCLT for appointing the administrator as the Insolvency Resolution Professional.
DHFL’s creditors include mutual funds, pension funds, insurance firms and a wide array of retail investors, and its collapse could impact India’s already ailing banking sector and further weaken economic growth. DHFL owes lenders close to Rs1,00,000 (about $14 billion).
Non-banking finance compoanies in the country have been under stress after a string of defaults by Infrastructure Leasing and Financial Service Ltd (IL&FS) last year triggered fears about contagion in the financial sector.
DHFL had in September submitted a draft resolution plan proposing to convert debt to equity, while seeking to sell assets and raise more capital.
Meanwhile, Sebi chairman Ajay Tyagi on Wednesday said mutual funds will join the resolution process of DHFL to be done under the insolvency law framework.
Mutual funds, which have lent substantial sums of money to DHFL had not joined previous attempts at resolution, after financial woes at the company came to light.
"Under the IBC, mutual funds are also considered as lenders and they will follow that rule. We have nothing to say on that," the Sebi chairman told reporters, without naming DHFL.
Resolution of financial service providers can now be taken up under the Insolvency and Bankruptcy Code (IBC), with the government notifying a generic framework for such cases.