BCCL
Who is DHFL?
Dewan Housing Finance Corporation (DHFL) is another shadow bank. However, unlike IL&FS — which doled out money for large infrastructure projects — DHFL was primarily involved in giving loans to home buyers in India’s tier 2 and tier 3 cities.
What led to its downfall?
DHFL and IL&FS may cater to different segments, but the two are nonetheless interlinked. After the IL&FS crisis, banks became more stringent about their lending, especially when it came to NBFCs.
While caution was prudent and the need of the hour, it also led to a liquidity crunch in the market, leaving shadow banks like DHFL with limited credit access in the latter half of 2018. Without short term loans to finance long term lending, its stock price took a beating of nearly 60%. But alarm bells were not ringing yet — until January.
How did it unravel?
An expose by the Cobrapost claimed that the bank’s promoters — Kapil and Dheeraj Wadhwan — had been siphoning off money from their customers to the tune of around ₹31,000 crore for the last three years. The money was taken out through secured and unsecured loans and advances to shell companies owned by the Wadhwan brothers.
The blog also alleged that the bank had loaned out money without conducting due diligence. DHFL initially claimed that the accusations were malicious and untrue.
Soon after, the Serious Fraud Investigation Office (SFIO) launched an investigation into the allegations. Auditors found that when DHFL sold its stake in Pramerica Life Insurance to DHFL Investments, the deal was undervalued, amounting to a fraud of ₹2,150 crore.
In October 2020, the Economic Offences Wing of the Tamil Nadu police arrested the Wadhwan brothers on the charge of defrauding investors of their money by floating bogus schemes and non-repayment of ₹218 crore of collected deposits.
How was it rescued?
DHFL was brought under the charge of the RBI in November last year. The bank became the first financial services company to be taken in under the Insolvency and Bankruptcy Code (IBC).
Current status
In October 2020, DHFL received four bids to either pick up a stake in the company or buy out its assets from the Adani group, Piramal Enterprise, US-based Oaktree, and Hong Kong-based SC Lowy.
However, the lenders behind the deal — with the State Bank of India (SBI) leading the charge — deemed the bids unsatisfactory.
Not satisfied with the bids received, lenders of Dewan Housing Finance (DHFL) have asked the four suitors, including Adani Group and Piramal Enterprises, to come up with improved offers for the beleaguered firm in the next few days.
Kapil Wadhawan has also offered to put up ₹43,000 crore from his family assets to repay the lenders.