Fall of DHFL (Dewan Housing Finance Limited): A Quick Summary


Dewan Housing Finance Limited was established  by Rajesh kumar wadhawan on 11th April 1984. It is a deposit taking Non Banking Financial Company (NBFC) with its headquarters at Mumbai. It's business model majorly consists of providing economical housing finance to lower and middle income groups in semi-urban and rural parts of the country. It being the second of its kind in India. It also leases out commercial and residential premises.

This being a less talked about scam, let us know about it in detail:

January 2019

Several allegations were made over DHFL by the cobrapost for siphoning off 31000 cr through various shell companies for the benefit of the promoters and primary stakeholders being Kapil wadhawan,Aruna wadhawan and Dheeraj wadhawan. 

The siphoned money was then used to purchase equity and private assets in the United Kingdom, India, Dubai, Sri Lanka, and Mauritius.

The most important point being that the loans were disbursed without adequate security.

No collateral means difficulty in recovery.

Promoters  are supposed to give personal guarantees to further ensure the safety of the loans.

On top of that promoters did not have personal assets so even they could not be prosecuted.

The loans given was later brought back in the promoter companies creating bigger problems know as round tripping of funds.

Also cobrapost claimed that the company has received political contributions in violation of section 182 of the companies Act,2013.

The BSE called in the promoter to which DHFL responded by stating that the allegations were untrue putting an end to the on-going speculations.

Despite the allegations the credit rating agencies continued with their previous rating for DHFL raising no concerns over its credit worthiness.

May 2019

DHFL  suspended  acceptance and renewal of FD also barred premature withdrawals for the existing investors. 

This decision came after CARE( credit rating agency) downgraded DHFL's FD programme worth 20,000 cr from A to BBB wherein A stands for low credit risk and BBB stands for moderate credit risk.

Later this month it informed the stock exchange about it's inability to file audited standalone and consolidated financial statements for FY 19 within time.

June 2019

DHFL delayed payment of interest on its bonds and Bond repayment worth 960 cr along with missing the deadline  for repayment of 1150 cr to Bond holders.

ICRA,CRISIL downgraded rating on 850 cr of Commercial Paper of DHFL to default from A4 due to inadequate liquidity.

Citing the ongoing events the price of share dropped in double digit and hit an intra day low of 94.90 lowest since December 2013.

September 2019

DSP mutual fund sold 300 cr of DHFL paper at 11 percent in the secondary markets being lower than the traded rates which raised concerns about the ongoing liquidity of the company although the company kept denying the concerns.

October 2019

Enforcement Directorate (ED) conducted raids at various locations of the company finding that the company had made a total of 2186 cr loans to firms which were directly or indirectly linked to the promoters including Sunblink Real Estate Pvt Ltd (One of the directors of Sunblink, Sunny Bathija, being the brother-in law of Dheeraj wadhawan) and its subsidiaries. Loan given to Sunblink had its links to gangster Iqbal Mirchi, an accomplice of the organized crime mastermind Dawood Ibrahim.

November 2019

RBI due to the financial irregularities superseded the board of crisis-ridden DHFL and appointed an administrator.

RBI appointed 3 member advisory committee to assist the administrator.

RBI filed an application for insolvency against the company. 

It,being the first financial services company that was sent for corporate insolvency resolution process.

December 2019

National Company Law Tribunal bench at Mumbai commenced Corporate insolvency resolution process( CIRP) and appointed the administrator to perform the entire process. 

Also as on this date the company owed 97000 cr worth of loans.

January 2020

Kapil Wadhawan (one of the promoter) was arrested under the Prevention of Money Laundering Act (PMLA). The arrest was in connection of the loan links with the organized criminal enterprise of Dawood Ibrahim as per the raid conducted earlier.

February 2020

The PMLA court granted bail to Kapil Wadhawan. The Bombay high court upheld the bail decision by PMLA court, rejecting Indian Enforcement Directorate requests to stay the bail application.

September 2020

Forensic audit was conducted by Grant Thornton which came up with several facts being :

The fraud was carried out using the Bandra branch of the company.

The branch itself being a fictitious entity did not existed and simply was a cover up for carrying out the sanctioning and disbursal of loans by DHFL.

The branch used the account holders details who had already repaid their loans but whose KYC was available with the bank.

It apparently used 3 softwares to carry out these transactions.

Loan requests from Bandra branch were sent directly to the CMD, who gave email approvals for disbursal and based on that funds were transferred from  DHFL’s treasury accounts with Axis Bank and Union Bank of India. ( These banks had standing order to transfer funds on the basis of email approvals).

For genuine loans Standard operating procedures were duly followed contradicting those with malicious intend.

Auditors investing DHFL came up with the fact that a 17394 cr fraudulent transaction has been entered into in the last 10 years.

Debt amounting to 83873 cr is due to the state-run institutions, Mutual Funds and retail Bond Holders.

SEBI barred the wadawans from the securities market due to them entering into fraudulent transactions and submitting false financial statements for several periods.

December 2020

Dooming Dewan Housing Finance Corporation Ltd (DHFL) reported a fresh fraud of ₹1,058.32 crore based on an additional report filed by Grant Thornton.

The administrator of DHFL filed 3 applications making a combined impact of the amount mentioned earlier.

DHFL had total assets amounting to Rs 79,800 crore as of March 2020, as per its annual report. Of these, Rs 50,227 crore of assets forming 63 per cent of the total portfolio were reported as non-performing assets, and its retail book stood at Rs 33,500 crore.

Adani Group, Piramal Group, US-based asset management company Oaktree Capital Management and Hong Kong-based SC Lowy are the four entities that submitted bids for DHFL in October.

Oaktree Capital being the  highest bidder at about Rs 36,700 crore, while Piramal has put in a bid for Rs 35,500 crore. Also Adani Group has placed a bid for DHFL at Rs 33,100 crore

Wadhawan has placed a fresh proposal for repayment of 100 per cent principle to all creditors in the upcoming 8 years together with an upfront repayment of Rs 9,000 crore.

I hope it was helpful 
-Articulated By Divya Pansari

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