DHFL’s Retail Depositors Prepare For Steep Haircuts: BQ Exclusive

Those holding fixed deposits at Dewan Housing Finance Corporation Ltd. will take a steep haircut on their savings as per the resolution plan approved by the home financier’s Committee of Creditors. On Friday, creditors approved a resolution plan by the Piramal Group, which offers DHFL’s creditors a total of Rs 32,750 crore in cash and debentures.

The scheme of distribution of funds proposes to pay out Rs 1,241 crore to fixed depositors, as against the total claims of Rs 5,375 crore. This works out to a 23% recovery for these creditors. This recovery rate is lower than the 32.8% recovery for creditors such as banks, financial institutions, institutional and retail investors of secured NCDs.

Fixed depositors, who held 6.18% of the total votes, voted against the proposed distribution but were outnumbered. The proposal passed with more than 85% of the votes, well ahead of the minimum 66% vote required.

Queries were sent to DHFL’s administrator R Subramaniakumar and the company’s largest lender State Bank of India on Saturday. Responses are awaited.

Even among fixed depositors and NCD holders, the CoC at DHFL has proposed to create divisions.

Those with deposits worth Rs 2 lakh or less, constituting about 70% of the total number of fixed depositors, will get their principle repaid in full in cash, the people quoted above said. While the number of depositors falling this category is high, they only represent about 8% of the total deposit claims.
For those with dues of Rs 2 lakh to Rs 10 lakh, the creditors have proposed a repayment rate of about 40-43% of the principle dues in cash.
Investors and depositors with dues worth Rs 10 lakh and above are likely to be paid out on a pro-rata basis, using the remainder of funds after the other categories are repaid. This category of depositors will be repaid through a mix of cash and securities issued by Piramal Group.

Legal Battle Ahead?

Vaibhan Guliani, the lawyer representing fixed depositors, said that the fixed depositors are seeking their claims be settled in full, without any haircut.

“We have already approached the NCLT (National Company Law Tribunal) seeking a fairer repayment structure, as the National Housing Bank rules state that any housing finance company continuing to lend, must ensure that its depositors are being paid in full,” Guliani told BloombergQuint. Since DHFL has been conducting its loan business since January 2020, it is the responsibility of the company to repay depositors in full, Guliani said.

Guliani did not share a copy of the petition filed in front of the NCLT, however, he said that the next hearing is due on Jan 20. “We are prepared to go till the Supreme Court, if needed,” he said.

According to the Master Directions of the NHB available on its website, the housing finance regulator requires depositors be paid for a company to continue lending in the housing finance market.

“A housing finance company which has failed to repay any public deposit or part thereof in accordance with the terms and conditions of such deposit, as provided in section 36A(1) of the National Housing Bank Act, 1987, shall not grant any loan or other credit facility by whatever name called or make any investment or create any other asset as long as the default exists,” the directions say.

The opposition by the fixed depositors is not shared by entities representing the NCD holders. Catalyst Trusteeship Ltd and IDBI Trusteeship Ltd, which are the entities representing the debenture holders in the CoC, have not indicated that they will pursue any legal action against the distribution mechanism, the people quoted above said.

Queries were sent to Catalyst Trusteeship, IDBI Trusteeship on Saturday. A response is awaited. Charu Desai, the authorised representative of fixed depositors in the CoC, did not respond to a query on Saturday either.