Liquidity-starved DHFL stops fresh deposits, premature withdrawals

Liquidity-starved Dewan Housing Finance Ltd (DHFL) has said it won’t allow premature withdrawals of its deposits, with immediate effect, in order to reorganise its liability management. The housing finance company has also stopped accepting fresh public deposits and renewals of existing deposits.

On Friday, the company’s credit ranking was downgraded by Brickwork Ratings to ‘BBB-Plus’ (from the earlier ‘AA-negative’), and put on ‘a credit watch with negative implications’. 

Also on Tuesday, the Reserve Bank of India (RBI) board said it would not extend a special line of credit for the non-bank financial corporation (NBFC) segment. 

BBB is considered a non-investment grade rating. According to National Housing Bank (NHB) rules, such companies may not accept deposits. Therefore, since they cannot take new money, redeeming deposits prematurely is also not possible. It is their right to not entertain a premature withdrawal in such cases, said a company official. 

The company's fixed deposit liability is Rs 12,000 crore, which has also been downgraded by the rating agency. 

“In view of the recent revision in the credit rating of our fixed deposit programme, acceptance of all fresh deposits, as well as renewals, has been put on hold with immediate effect,” DHFL sent a notice to its distributors on Tuesday. “Further, to help us re-organise our liability management, pre-mature withdrawal of deposits has also been put on hold. However, we will continue to honour all premature deposit withdrawal requests in any medical or financial emergency.”

The company said it remained solvent. “Over the last few weeks, there have been several unwarranted speculation in the market about the creditworthiness of DHFL. We assure you that we stand committed to honouring all our liability payments and have demonstrated this by repaying liabilities amounting to approximately Rs 30,000 crore since September 2018, without a single day’s delay,” the notice said.  Brickwork downgraded Rs 29,000 crore of the company’s secured non-convertible debentures (NCDs) issued publicly, Rs 12,000 crore of secured NCDs and Rs 2,250 crore of subordinated debt papers, Rs 1,300 crore of perpetual debt instruments and Rs 12,000 crore of fixed deposits, “on account of limited progress in building up of liquidity, selling/exiting riskier construction finance loans and delay in announcing a strategic investor for DHFL”.

The firm has been trying to sell non-core assets, including its education finance arm. Recently, it had said it was in talks with strategic investors to sell a significant stake in the original company. 

DHFL’s share price had halved on a single day in September, after DSP Mutual Fund was unable to sell its papers in the market and had to offload at a steep discount. The firm’s promoters have been accused with siphoning off funds, which DHFL denied strongly. 

The shares of the company had risen 11 per cent in two days on hope of a liquidity window from the central bank but those hopes have been dashed after the RBI board meet. On Tuesday, the shares closed at Rs 129.9 on the BSE.