TNIE: Karnataka Bank reports Rs 285 crore fraud in four loan accounts

6 June 2020: Private sector lender Karnataka Bank has reported to the RBI that it has been defrauded of over Rs 285 crore consequent to loans gone bad to four entities including DHFL. A total of Rs 285.52 crore has been reported as fraud wherein the bank was one of the consortium lenders during 2009 to 2014 to Dewan Housing Finance Corporation Ltd (DHFL), Religare Finvest, Fedders Electric and Engineering Ltd and Leel Electricals Ltd, Karnataka Bank said in a regulatory filing on Friday.

The maximum is owed by DHFL at Rs 180.13 crore, followed by Religare Finvest Rs 43.44 crore, Fedders Electric Rs 41.30 crore and Leel Electricals Rs 20.65 crore.

“DHFL (defaulted entity) dealing with us since 2014 had availed various credit facilities under consortium arrangement wherein, we were one of the member banks. In view of Early Warning Signals (EWS) in the conduct of the account and other developments, the account was red flagged on November 11, 2019.

“The borrowing account was classified as Non-Performing Asset on October 30, 2019 and now, for misappropriation & criminal breach of trust & diversion of funds in the credit facilities extended earlier to the company, a fraud amounting Rs 180.13 crore has been reported to RBI,” Karnataka Bank said.

Likewise, Religare Finvest Ltd (RFL) was dealing with the bank since 2014, availing various credit facilities.

Following classification of this account as non-performing in October 2019 by a consortium member, Karnataka Bank reported to RBI a fraud amounting to Rs 43.44 crore in the credit facilities extended earlier, on account of diversion of funds.

Leel Electricals was classified as NPA account in March 2019 and it reported to RBI a fraud amounting to Rs 20.65 crore in the credit facilities to the company on account of diversion of funds.

“In all the referred three non-performing accounts, necessary provisions have been made in full to be spread across four quarters,” it said.

Fedders Electric and Engineering Limited was reported as NPA in July 2018 by a member bank in consortium, subsequent to which Karnataka Bank reported fraud of Rs 41.30 crore on account of fund diversion.The account has already been fully provided for, it added.

Source: The New Indian Express reported

TNIE: Money laundering case: DHFL promoters Wadhawans sent to jail

27 May 2020: A special court here on Wednesday remanded DHFL promoters Kapil and Dheeraj Wadhawan, arrested by the ED in connection with money laundering probe against Yes Bank co-founder Rana Kapoor and others, to 14-day judicial custody.

They were arrested earlier this monthunder the provisions of the Prevention of Money Laundering Act (PMLA).

The Wadhawans brotherswere produced before the special court at the end of their Enforcement Directorate (ED) remand. The court sent them to jail after no further remand was sought by the central investigating agency.

The duo, also being probed by the ED in another money laundering probe linked to late gangster Iqbal Mirchi, were summoned by the agency multiple times in the Yes Bank case but they had cited the ongoing COVID-19 travel restrictions to skip appearance.

In April, the Wadhawan brothers and their family members had travelled to Mahabaleshwar, a hill station in Satara district of Maharashtra, in violation of the coronavirus-induced lockdown. Five vehicles used by the family were seized by the ED.

As many as 44 companies belonging to 10 large business entities, including Anil Ambani Group, Essel Group, IL&FS, Dewan Housing Finance Corporation Ltd, Cox & Kings and Bharat Infra, among others, reportedly accounted for bad loans worth Rs 34,000 crore of Yes Bank.

The ED has accused Kapoor, his family members and others of laundering “proceeds of crime” worth Rs 4,300 crore by receiving alleged kickbacks in lieu of extending big loans through the bank that later allegedly turned non-performing assets (NPAs).

Kapoor is currently in the ED’s custody. The Wadhawans are also being probed by the Central Bureau of Investigation (CBI) in connection withthe same case.

Source: The New Indian Express

FE: DHFL claims cross Rs 1 lakh crore

24 March 2020: The amount claimed by creditors of troubled Dewan Housing Finance Corporation (DHFL) has crossed Rs 1 lakh crore, sources told FE. The sources added that 70,913 creditors “have claimed Rs 1,00,064 crore from DHFL till now.” Financial creditors, including bondholders, have claimed Rs 86,469 crore from DHFL.

India’s largest lender State Bank of India, including SBI Singapore, is the lead creditor with a claim of Rs 10,083 crore, followed by Bank of India, which has claimed Rs 4,126 crore. Canara Bank has claimed Rs 2,682 crore, National Housing Bank (NHB) has claimed Rs 2,434 crore, Union Bank of India `2,378 crore and Syndicate Bank Rs 2,229 crore, among other lenders.

The total amount also includes claims of Rs 2,500 crore from promoter entity of Wadhawan Global Capital (WGC). The claim relates to the exercising of a put option by Wadhawan Global Capital (WGC) and was filed by Dheeraj Wadhawan on behalf of the group company.

The troubled lender is undergoing a resolution process under the Insolvency and Bankruptcy Code, 2016, after the Mumbai bench of the National Company Law Tribunal (NCLT) admitted the case on December 2, 2019. DHFL is evaluating expression of interests received for the company. FE reported earlier that lenders discussed the revised evaluation matrix of bidders in the CoC meeting held on March 12. During the meeting, it was decided that 5% more weightage will be given to net present value (NPV) compared with the previous plan. The new evaluation criteria gives 40% weightage to NPV, 30% weightage to cash upfront, 10% for capital infusion, 5% to equity stake and remaining 15% evaluation will be done based on qualitative parameters.

FE has learned that 24 applicants have submitted expressions of interest (EoIs) for DHFL. The company had given the option to bidders to bid for the whole company or in parts. Under Option I, suitors were invited to submit EoIs for the entire business of DHFL. Under Option II, prospective resolution applicants were invited to submit EoIs for one or more groups or a combination of any assets in isolation across different groups of DHFL. The bids for the bankrupt mortgage lender are to be invited across three areas – retail, non-retail and slum rehabilitation authority (SRA) loans.

Source: Financial Express reported

LM: Lenders set terms for DHFL liquidation after big loss

23 Jan 2020: Indian lenders set preliminary terms for companies wishing to bid for Dewan Housing Finance Corp.’s assets, people with knowledge of the matter said, as the nation’s bankruptcy courts attempts to resolve its first shadow bank insolvency.

The assets have been divided into three groups — mortgages, loans to builders of government-assisted housing, and project financing, the people said, asking not to be identified because the discussions are private. They have set minimum net worth and asset requirements for the bidders in each category, the people added.

The debt resolution process for Dewan Housing is being closely watched because it’s likely to create a precedent for other shadow lenders affected by the crisis which broke out in 2018 with a series of defaults at a major infrastructure lender. Dewan Housing, which has a market capitalization of ₹500 crore ($70 million), reported a ₹6,640 crore loss for the quarter ended Sept. 30 late on Wednesday.

Dewan was one of the worst affected by the crisis, prompting the Reserve Bank of India (RBI) to take over management of the company in November and start bankruptcy proceedings. Representatives at Dewan and Union Bank of India, which is leading the creditor’s group, didn’t immediately respond to emails seeking comment.

Bidders for the mortgage loans will need a minimum net worth of ₹3,500 crore and ₹10,000 crore of assets under management, the people said. While investors for the builder’s loans taken out under the government’s slum rehabilitation program require net worth of ₹500 crore and assets under management of ₹1,000 crore, one of the people said.

For project loans, the requirement is ₹1,000 crore of net worth and ₹4,000 of assets under management, the person added.

The decision was taken at a lenders meeting last week, at which advisory firm Grant Thornton was appointed to conduct an audit of Dewan’s transactions, the people said. The lenders also appointed real estate specialists JLL India and RBSA Advisors to value Dewan’s assets and give them an assessment of the losses they are likely to face, the person added.

Dewan Housing has about ₹3,800 crore in outstanding inter corporate deposits, the company said in a filing Wednesday, adding that it’s uncertain the amount can be recovered. It has set aside ₹2,400 crore as provisions to cover this.

“The company is undergoing substantial financial stress since second half of the previous financial year,” Dewan Housing said. “As a result, the company’s ability to raise funds has been substantially impaired and the business has been brought to a standstill.”

Source: Live Mint

BQ: DHFL’s Proposal: Small Depositors, Investors To Be Paid In Time, Everyone Else Waits

22 August 2019: Certain retail investors who participated in non-convertible debenture issuance by Dewan Housing Finance Corporation Ltd. and retail depositors will be repaid in time at contractual interest rates, according to the resolution plan proposed by the beleaguered housing financier.

Full repayment is applicable for investors and depositors with up to Rs 10 lakh outstanding. Any deposits or NCDs beyond Rs 10 lakh would be treated on a par with secured lenders, DHFL has proposed.

For non-retail NCD holders and banks that have extended term loans and other forms of credit, DHFL has proposed extended repayment periods, lowered interest rates and conversion of a part of their exposure in to long-term equity-like instruments.

BloombergQuint has reviewed a copy of the proposed resolution plan, which is currently under consideration by the creditors. The banks with exposure to DHFL and insurers have already signed an inter-creditor agreement to ensure a coordinated plan of action to resolve stress in the company. Mutual funds, which have invested in the NCDs, are yet to sign the agreement as they await approval from the market regulator.

The Resolution Plan

DHFL’s over Rs 85,000 crore liabilities are to be split into three portions, with each receiving different treatment and repayment schedule.

1. Loans To SRAs & Large Projects

For loans to slum rehabilitation projects, large project loans, inter-corporate deposits and some pass through certificates, where total liabilities are over Rs 36,000 crore, the housing financier has proposed that the repayment period be extended.

Among these liabilities, bank debt worth Rs 16,175 crore and public deposits worth Rs 4,162 crore will be repaid over 16 years, at 0 percent interest rate, the company has proposed. The repayments would also carry an eight-year moratorium on repayment of principal amount. A portion of these liabilities would be converted into long-term instruments like redeemable preference shares or unsecured debentures, the company said.

NCDs worth Rs 14,121 crore would be repaid over nine years with no interest payments either. In this case, the proposed moratorium is two years.

The company has also proposed conversion of Rs 1,764 crore worth debt to equity, which would ensure the lenders control 51 percent equity in the company. The conversion will be at a price of Rs 54 per share.

2. Loans To Other Projects

For projects and mortgages worth up to Rs 14,700 crore, the company has proposed an extended repayment period of eight years at 8.5 percent annual interest. This includes term loans worth Rs 570 crore received from banks and Rs 14,129 crore worth NCDs. Here too, the company has sought a two-year moratorium on repayment of the principal, which means repayments would only start after the moratorium.

3. Retail Loans & Related Pass Through Certificates

As per the proposed resolution plan, this portion of the liabilities includes public deposits and public NCDs up to Rs 10 lakh, non-retail NCDs and term loans from banks. These funds were used to generate retail loans and pass through certificates worth over Rs 34,000 crore.

The non-retail NCDs have been split into two, where NCDs worth Rs 2,599 crore would be repaid over 10 years at 0 percent interest, while NCDs worth 12,198 crore would be repaid over the same time horizon at an interest rate of 8.5 percent. Term loans worth Rs 14,726 crore would be repaid over 10 years at 10 percent interest per anum, while loans worth Rs 1,190 crore would carry a lower rate of 8.5 percent, as per the plan.

DHFL has been under financial stress since September 2018, after the debt market turned cautious towards housing and non-banking financiers, following the crash of Infrastructure Leasing & Financial Services. It has now completely stopped lending and has sought funding worth Rs 1,200-1,500 crore a month from its lenders to restart its operations.

In the past, DHFL has claimed it has repaid Rs 41,000 crore worth dues, which it achieved by selling its loan portfolio to other lenders. The stress in the company is currently being resolved under the Reserve Bank of India’s June 7 circular, which deals with restructuring debt. The lenders had signed the inter-creditor agreement in the first week of July, following which, they have 180 days to implement a resolution plan.

If they are unable to implement the plan within the timeline prescribed by the RBI, the banks would have to set aside higher penal provisions. DHFL cannot be resolved under the insolvency and bankruptcy code, since the code doesn’t cover financial companies.

Lenders have mulled an option to take over the company and run its lending business as a unit of the consortium. However, this option will be exercised only if all other avenues of turning around DHFL fail.

Bloomberg Quint reported

FE: UBI: Current DHFL resolution plan best under circumstances

21 August 2019: The resolution plan for Dewan Housing Finance (DHFL) that lenders are now examining is the best one under the circumstances, said Rajkiran Rai G, managing director and chief executive officer, Union Bank of India (UBI), the lead bank in the consortium of lenders to DHFL. Taking temporary control of the mortgage firm is an option banks are considering and they are still waiting for mutual funds (MFs) to sign the inter creditor agreement (ICA), Rai added.

“Even if the banks acquire equity, it will be a very short-term thing. If we are not able to get a good investor at this point of time, then maybe, but it will not be a long-term proposition. It may happen. It is one of the ideas,” he said on the sidelines of Fibac 2019, an annual event organised by the Federation of Indian Chambers of Commerce & Industry (Ficci) and Indian Banks’ Association (IBA).

Rai said the company has been counting stake sale among its options right from the beginning of the resolution process, but the process takes time because likely investors look for clarity. He said it is yet unclear if MFs will end up joining the resolution process formally. “As such, now we have no idea (about whether Sebi will allow MFs to sign ICA), but then definitely it is a regulator-to-regulator discussion,” Rai observed, referring to discussions between the RBI and the Sebi.

The resolution process in the case of DHFL is a complex one as it is the first financial company being resolved under the RBI’s June 7 circular and there are multiple categories of creditors involved — banks, insurance companies, MFs and pension funds. Rai explained that the way MFs are structured and the kind of investment they do, for them to implement a resolution plan to the satisfaction of their investors is not easy.

“For banks, it’s a very normal thing because our rules permit it, our regulator understands it. MFs are operating in a totally different area. Suppose, a resolution plan involves a payout over 10 years, how will a mutual fund handle it?” Rai said, adding, “The only thing I can say is that the resolution plan which is under discussion can be the best plan under the given circumstances.”

Some features of the June 7 circular are not applicable to the resolution process for DHFL as a financial company cannot be taken to the insolvency courts. For companies from other sectors, the circular prescribes either bankruptcy proceedings or a high provisioning requirement. “The 180-day stipulation does not apply here because it cannot go to NCLT. I think it may not go that far (of getting RBI involved after 180 days elapse),” Rai said.

The Financial Express reported

FE: Resolution plan: Bankers want Kapil Wadhawan to step down from DHFL

20 August 2019: Bankers have proposed in the resolution plan that Kapil Wadhawan should step down as chairman and managing director of the cash-strapped Dewan Housing Finance Corporation Ltd (DHFL) and that his existing stake be brought down to below 10%.

The resolution plan, which is still being worked upon and awaits final nod from all categories of lenders, wants the existing management to step away.

As per the resolution plan, the promoter would also be required to pledge a part of their remaining stake to lenders (which would be below 10%), a banker close to the developments told FE.

Promoter group holding in DHFL is 39.21%. Only last month, mutual funds had refused to take an out-of-turn haircut. In case of insolvency proceedings, losses are apportioned between equity shareholders, preference shareholders, perpetual-Tier-II bond holders and unsecured lenders. After these four categories have apportioned the losses, then the secured lenders also end up taking a similar proportion of haircut.

While MFs are still awaiting the Securities and Exchange Board of India’s nod to become signitories to the the ICA, they insisted that the resolution plan should follow the law. Bankers are concerned that any possible legal action from MFs could be detrimental to the resolution process.

A banker aware of the developments said: “Lenders are very clear on wanting a change of management. In the immediate future, we have proposed that the promoter step down and banks take over operations until a new investor takes charge. As far as banks taking control is concerned, we are very comfortable with the idea.”

Other terms of the resolution plan include segregation of bad debt into a fresh entity or instrument. This so-called ‘bad’ debt—Slum Rehabilitation Authority loans and developer loans could get converted to an equity, or semi-equity instrument like Cumulative Redeemable Preference Shares (CRPS). Thereafter, part of the good debt within DHFL could also further get converted to equity from debt, the banker said.

“At the end, DHFL will largely be left with its retail portfolio and what is considered good quality business, which is also what most investors who have shown interest in the company are attracted to,” the source added.

It is unclear whether bankers have already in talks for a new investor, though it is largely understood these terms will be put forth to shareholders of the company in September.

The Financial Express reported

BS: DHFL resolution plan: Stakeholders seek legal protection from future claims

13 August 2019: Key stakeholders in the beleaguered Dewan Housing Finance Corporation (DHFL), including the consortium of bankers, unsecured creditors and potential PE investors, are discussing the possibility of a legal framework which would indemnify them from any future claims made against the company.

The stakeholders want protection from any litigation which might arise due to fresh claims against the company, especially after PE funds have bought stake in the company and the resolution plan has been cleared by the bankers.

The matter has come to the fore since many mutual funds, which lent money to DHFL, are yet to recover their dues. DSP Mutual Fund has initiated legal action against DHFL for recovery of around Rs 180 crore. Mutual funds are not formally bound by the inter-creditor agreement, which has to be mandatorily signed by banks to mark their consent to work on a resolution plan as per Reserve Bank rules. So claims can arise even after a resolution plan.  

According to sources privy to the discussions, the prospective investors of DHFL have made it clear that in the absence of such legal protection, they would prefer to bid for the company through a National Company Law Tribunal (NCLT) process. They said that since such a process would have the legal sanction of the NCLT, it would be free from any future legal claims against the firm.

A source involved in the discussions says: “Such a legal structure will provide comfort to potential buyers besides helping the lenders attract a wider participation from strategics who may have kept away — apart from PE investors AION Capital or Cerberus which have shown interest.”

A spokesperson for DHFL did not respond to a query on the issue and an email to AION Capital did not elicit any response.

DHFL has sent a resolution plan to the consortium of bankers. Its broad feature is a request for extending credit lines to the company to the tune of around Rs 1,500 crore every month so that it can kick-start fresh lending. It also envisages a moratorium on repayments and that there should principally be no haircuts to any creditors. The plan is under scrutiny by the consortium of banks. As a result, DHFL is unlikely to be able to pay its interest obligation of Rs 440 crore in the next two months to secured lenders (those holding NCDs) against a principal outstanding of Rs 4,770 crore.

Those involved in the discussions say that an earlier move to carve out DHFL’s retail loan portfolio into a separate company and sell it to an investor was abandoned as lenders were not keen on such a deal. As a result, PE funds like AION are now willing to pick up a stake in DHFL and are also looking for control. The company’s promoter, Kapil Wadhawan, had hinted earlier that he would be willing to give joint or even a controlling stake in order to get funds for the company.

The Business Standard reported

LM: DHFL seeks a ₹15,000-crore lifeline as resolution plan gets delayed

11 August 2019: Troubled mortgage lender Dewan Housing Finance (DHFL) has sought ₹15,000-crore immediate funding from banks for on-lending to retail customers as well as to project developers, say sources.

Last week, the nearly crippled company had submitted a draft resolution plan to lenders which are yet to be approved by them.

“The company has asked for an additional funding of ₹15,000 crore. The money will be used to fund viable projects that are stuck due to lack of money,” said one of the sources.

When contacted, a DHFL spokesperson said it did not have any comment to offer apart from what it has informed the stock exchanges last week on the draft resolution plan.

Under the draft resolution plan, the company has asked for funds from banks/NHB for restarting retail funding which was stopped after liquidity crisis hit it late year.

According to sources, the decision on any additional or the quantum of funding will be taken only after due deliberations by lenders.

The beleaguered home financier, which has defaulted on multiple times on payment to bondholders since June owes close to ₹90,000 crore to banks, the National Housing Bank (NHB) and other creditors.

Last month, lenders had signed an inter-creditor agreement (ICA), as mandated by the Reserve Bank in the new NPA resolution/recognition framework effective June 7.

However, the company had said one of its debenture – trustees Catalyst Trusteeship Servicesis in the process of seeking consent from the debenture holders to be a party to the ICA.

In a separate filing to exchanges on 8 August, the company said it may not be able to meet its financial obligations in the near future.

“Given the ongoing discussions on the resolution plan with the lenders who have signed the ICA, we believe that our payment obligations falling due in the immediate future, may not be met as per their existing schedule,” the company informed the exchanges.

It has been facing liquidity issue since last September and has back paid ₹41,000 crore of its financial obligations through a combination of securitization of assets and repayment collections since.

The Wadhawan family, who owns a little over 39 per cent, has been looking at various ways to come out of the stress which first came to light late last year following the IL&FS bankruptcy. These include selling stakes in group entities, including in the flagship to the extent of giving up half of their stake.

DHFL has seen a rash of rating downgrades in June after it defaulted on ₹1,150 crore to its bond-holders due on June 4. This led to a downgrade of its ₹850-crore commercial papers to ‘default’ by three rating agencies.

The LiveMint reported

TOI: DHFL’s debt-resolution plan hard to accept, say lenders

7 August 2019: Troubled housing finance company DHFL has submitted a debt-resolution plan, which lenders have described as hard to accept. The reason is that the plan involves giving the borrower time to repay and more money to do business in the hope that future earnings will be adequate to repay loans without any haircuts. It does not have any concrete investment proposal from a new lender.

A banker said that there were several challenges in implementing a resolution plan for DHFL. Even if wholesale lenders like banks agreed to wait, there was a possibility that retail investors, mutual funds and provident funds would sue and derail the process. Lenders were not willing to provide DHFL loans merely to repay retail investors. They also want a change in the management in keeping with the principles of the Insolvency and Bankruptcy Code, even though the same is not applicable to finance companies.

According to the results filed by the company, as of March 31 this year, it had R 45,000 crore of debt securities outstanding, Rs 40,600 crore of borrowings and Rs 6,588 crore of deposits. Total liabilities stood at Rs 98,199 crore. The auditors had questioned the recoverability of thousands of crores of loans to developers. A big chunk of bonds are coming up for redemption in the October-December quarter, which the company — given its current financials — is unable to repay. On the stock exchange, the DHFL stock soared 32% to Rs 55 on hopes of the company getting back on track. However, many lenders do not share the market’s optimism as they said that any haircut should first be taken by shareholders.

The Times of India reported