DHFL crisis: Bankers to enter into inter-creditor agreement by July 5

The consortium of 30 lenders led by the state-run Union Bank of India Monday decided to enter into an inter-creditor agreement before July 5 to thrash out a resolution plan for the cash-strapped Dewan Housing Finance (DHFL) that has been defaulting on a number of debt repayments, sources said.

The lenders also took stock of the month-end and quarter-end cash flow situation of the company whose promoters are talking to investors to pare stake to generate cash, and have set June 29 as the record date for the resolution, three bankers who attended the meeting told PTI.

"The meeting decided to sign an inter-creditor agreement latest by July 5," said a senior banker who attended the meeting.

According to sources, the resolution plan is likely to include asset securitisation and conversion of debt into equity as an interim measure until a new investor is found.

The Wadhawan family, which owns a little over 39 percent in third largest pureplay mortgage lender, has been looking at various ways of coming out of the stress which first came to light late last year following the IL&FS crisis. These include selling stakes in group companies, while they are also reportedly fine with giving up half of their stake in the listed entity of the group.

While an alternative investing fund has reportedly evinced interest in its wholesale book, at least two private equity funds are interested in buying into the company, it has been learnt.

DHFL has seen a rash of rating downgrades last month after it defaulted on Rs 1,150 crore to bondholders due on June 4. 

This lend to a downgrade of its Rs 850-crore commercial papers to 'default' by three rating agencies.

DHFL owes nearly Rs 90,000 crore to banks and other financial institutions, according to its FY18 annual report.

Following this on June 11 it had paid Rs 962 crore out of Rs 1,150 crore towards interest NCD repayment, but again on June 25, it failed to fully redeem another CP worth Rs 225 crore.

Over the weekend, it also sought Sebi nod to delay its March quarter earnings announcement to a fortnight.

Banker said since DHFL has defaulted on debt, and the 30-day review period has already begun under the new RBI circular for NPA recognition effective June 29, the lenders will now have to sign an inter-creditor agreement to decide on a resolution plan.

According to the Reserve Bank's revised framework for NPA resolution, issued on June 7, if a borrower is reported to be in default by any of the lenders, other lender should undertake a review of the account within 30 days from such default, which will be called as review period.

During the review period, banks may decide on a resolution plan and wherever a plan has to be implemented, all lenders will enter into an inter-creditor agreement within those 30 days to provide for ground rules for finalisation and implementation of a resolution plan.

At today's meeting, the lenders also reviewed liquidity position of the company.

"We wanted to see DHFL's cash-flow at the end of the June quarter. There are certain large customers that repay towards the end of the quarter to companies. So, the collection at the end of the quarter is higher than the month-end," said another banker.

The RBI blames the crisis on asset liability mismatches at firms like DHFL, which typically borrowed short for creating long term assets. The regulator has vowed to do everything possible to ensure systemic financial stability but nothing has been done to improve their liquidity as yet.

In the past week's financial stability report, the RBI said the impact of a big housing finance company going down will be the same as a large bank going down.