RBI to begin bankruptcy proceedings against shadow lender DHFL

Daniel Fowler
November 21, 2019

The Reserve Bank of India (RBI) has chose to supersede the board of troubled mortgage financier Dewan Housing Finance Corporation Ltd. (DHFL) and said bankruptcy proceedings would be initiated against the company.

It appointed R Subramaniakumar, the former managing director of Indian Overseas Bank as the administrator.

The central bank intends to shortly initiate the process of resolution of the company under the newly formed insolvency and bankruptcy rules, according to a statement by the RBI.

RBI also said that it will apply to the NCLT for appointing the administrator also as the Insolvency Resolution Professional.

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) past year triggered fears about contagion in the financial sector.

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This comes after the corporate affairs ministry on Monday issued a notification specifying the categories of financial service providers (FSPs) that can be taken up for resolution under the "generic framework" of the IBC.

The RBI released a statement saying that it made a decision to supersede DHFL Board of Directors due to concerns over governance and the debt-laden firm's failure to pay existing debts.

DHFL has been suffering from huge financial stress that led to the housing bank become one of the country's top defaulters with a debt valued at almost Rs 1 lakh crore.

"Under the IBC, mutual funds are also considered as lenders and they will follow that rule".

Banks had begun to classify loans extended to DHFL as "non-performing" indicating bleak chances of a resolution. The company had been making all payments for maturity and interest on all fixed deposits held with the company on their respective due days, he said. DHFL owes FD holders Rs 6,188 crore.

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