DHFL scam: Fake accounts, fraud borrowers used to transfer funds, finds auditor Grant Thornton

Auditor Grant Thornton has submitted its final forensic report on the Dewan Housing Finance Corporation Limited (DHFL) scam to the Reserve Bank of India (RBI)-appointed administrator.

The key findings of the report allude to hundreds of fictitious loan accounts, demand for recoveries amounting to Rs 14,046 crore, and deposits routed through an imaginary entity in Bandra.

The 98-page report was furnished on August 27 and follows the preliminary report submitted by Grant Thornton to RBI-designated administrator R Subramaniakumar in February this year.

The report takes forward the mode of operation of "round tripping" of funds through fake loans. The final (forensic) report comes at a time when DHFL's promoters Kapil Wadhawan and his brother Dheeraj Wadhawan are out on bail following their arrest by investigating agencies in January this year.

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Pointing towards the case as Bandra Books, Grant Thornton's report, cited by The Indian Express, highlights how names of fake housing loan "borrowers" were compiled and their details were "randomly picked from a database that appears to be created from the details pertaining to the closed loan accounts".

In total, 2.60 lakh "fake and fictitious" home loan accounts were created in the non-existent Bandra Branch between 2007-2019, and Rs 11,755.79 crore were deposited to Bandra Book firms, according to the report.

Grant Thornton's final forensic report focuses on 91 entities, wherein the auditor found that no collateral or security was obtained before the grant of these loans.

Grant Thornton also reviewed the financials of 50 of these firms - which received 70 per cent of the total Bandra Book disbursements- to uncover the nexus between the Wadhawans and these borrowers.

Concluding its report, the auditor observed that "34 entities have invested a portion of the amount received from the Corporate Debtor (the Wadhawans), which are related parties or directly or indirectly linked to the promoters..." The amount of fake loans disbursed to what Grant Thornton has described as "potentially direct/indirectly" linked to the promoters (Wadhawan brothers) were to the tune of Rs 1,554.51 crore.

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The reporter further stated that in many cases the funds disbursed were redirected to firms having links with the promoters, adding that several borrowers used common addresses and a lower interest rate was charged from the Bandra Books entities, all of which were contributing factors to the insolvency crisis in DHFL.

The links with the Bandra Book firms are evident in many cases, for instance, the Wadhawan brothers or their relatives turned out to be directors or promoters of several of these companies. Also, the Bandra Book firms were used as a "conduit for carrying out these fraudulent activities... these individuals are henchmen of the promoters/Directors and have acted as accessory for commission of fraud in relation to Bandra Book disbursements...," the report mentioned.

Earlier this year, the administrator of Dewa Housing Finance Corporation Limited (DHFL), appointed under the Insolvency and Bankruptcy Code (IBC), obtained assistance from Grant Thornton to conduct an investigation into the affairs of the mortgage firm.

Last year, the Mumbai-bench of the National Company Law Tribunal (NCLT) admitted the company for insolvency resolution. It had appointed Indian Overseas Bank's former managing director and CEO R Subramaniakumar as the company's administrator.

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Last year, the RBI sent the troubled mortgage lender DHFL for bankruptcy proceedings, making it the first financial services player to be sent to the NCLT for resolution. As of July 2019, the beleaguered home financier owed Rs 83,873 crore to banks, National Housing Board, mutual funds, and bondholders/retail bondholders.

Of the total, the secured debt stands at Rs 74,054 crore and Rs 9,818 crore in unsecured debt. Most banks have already declared DHFL accounts as non-performing assets.