Over 1 lakh fixed deposit holders' savings at risk due to DHFL crisis

Debt-ridden Dewan Housing Finance Limited's (DHFL) crisis has risked savings of over 1 lakh fixed deposit holders following allegations of fraud and fund diversion.

India's fourth-largest housing financier is currently being probed by the Enforcement Directorate (ED) over alleged links with global terrorist Dawood Ibrahim's aide Iqbal Mirchi. The company is suspected of fund diversion.

A forensic audit of the company by KPMG found that DHFL had lent Rs 14,000 crore to about 25 group companies, which had posted an average profit of about Rs 1 lakh, according to a report in the Mint earlier.

Also Read: DHFL lent Rs 2,186 crore to Sunblink Real Estate with links to Iqbal Mirchi; under ED scanner

This can derail a resolution plan for DHFL which has been in the works since last couple of months. The disclosures came as a setback for DHFL's lenders, mainly commercial banks with an exposure of Rs 38,342 crore to the finance company.

The government can also initiate an investigation by the Serious Fraud Investigation Office (SFIO) which may stall all repayments, the report added. Fixed deposit holders, most of them being retirees having invested all their lives' savings, were the first in the list to be repaid their money.

As part of the proposed debt resolution plan, a price of Rs 54 per share was assumed for conversion of debt into equity by lenders to acquire 51% in the company, DHFL had said last month.

Also Read: DHFL lent Rs 14,000 crore to 25 group firms, reveals forensic audit

As of July 6, DHFL had a debt of Rs 83,873 crore, of which over Rs 38,000 crore was owed to banks. The company also had public deposits of Rs 6,188 crore, which have dropped from Rs 10,166.72 crore at the end of March 2018.

The company was the worst hit by the liquidity crisis in the NBFC sector in the wake of the IL&FS debacle.

DHFL had on May 21 stopped accepting public deposits as well as the renewals of existing deposits. The company had also discontinued premature withdrawals of the existing deposits to "help reorganise its liability management".

The draft debt resolution plan which was finalised by the lenders has proposed a phased payout to public depositors carrying zero interest for 10 years. But, depositor's expectations of a swift clearance of the resolution plan has been dashed with the KPMG forensic audit discovering likely fund diversion and a looming SFIO probe.

Also Read: Rakesh Jhunjhunwala has lost Rs 178 crore with DHFL share in 2019

Once the probe agency takes over the case, the proposed debt restructuring plan will be relegated to the background as it is improbable that both can be executed concurrently, according to the chief executive of a public sector bank.

"We will have to wait for the investigation to be over for implementation of any resolution plan. Only if the SFIO finds that there was no mala fide intent on part of the promoters can the restructuring deal work," the banker told the news daily.

Also Read: CDSL freezes DHFL's promoter holding for delaying Q1 results