RBI to supersede DHFL board, approach NCLT for bankruptcy proceedings

The central bank said it had appointed R Subramaniakumar, ex-MD and CEO of Indian Overseas Bank, the administrator for DHFL

In its first action against the troubled housing finance company, the Reserve Bank of India (RBI) on Wednesday superseded the board of Dewan Housing Finance Corporation (DHFL) over governance concerns and defaults on payment obligations.

The RBI said in a statement that it had appointed R Subramaniakumar, former managing director and chief executive of Indian Overseas Bank, as the administrator of DHFL, to run the affairs of the entity which was once controlled by the Wadhawan family.

The RBI will soon initiate the process for resolution of the company under the Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority Rules, 2019. The regulator will also approach the National Company Law Tribunal (NCLT) for appointment of the administrator as the insolvency resolution professional.

The regulator can appoint an advisory committee comprising at least three experts to advise the administrator in the operations of DHFL when the insolvency proceedings are underway. 

Banking sources said the size of DHFL’s debt on book is large (about Rs 94,000 crore) and its administrator will need assistance to shape a resolution plan. The administrator will finalise timetable for financial performance review.  

Lenders are already working on a new plan for resolution after the IBC proceedings against DHFL are admitted in the NCLT. Under this, banks might convert a part of their loans to equity. Lenders also plan to get private equity investors for fresh capital. 

Banks would own 25 per cent equity and the PE players would have a 26 per cent stake in the augmented capital. “Since holding 51 per cent in the company required a lot of regulatory go-aheads, banks have decided to restrict debt conversion to 25 per cent,” said a banking sector source.

This time, banks are likely to enter into back-to-back agreements with investors interested in buying out their shares in 12-18 months of conversion. Banks also reserve the right to sell their stake in the open market if investors fail to do so.

PE investors such as AION Capital and Cerberus Capital, which had earlier evinced interest in DHFL, are believed to be in talks with banks again. Since the assets of DHFL cannot be restructured or reorganised immediately, investors will buy stake in the firm in totality — that is, including retail and wholesale assets. “It is possible that two PE firms will buy 10-16 per cent stake each,” said a source.

Challenges for administrator 

• Work with lenders to finalise resolution plan

• Finalise accounts for Q2FY20 and H1FY20

• Address concerns of depositors

• Ensure activities meet deadlines for timely resolution