RBI Appoints Committee To Advise On DHFL Insolvency Proceedings
The Reserve Bank of India has appointed a three-member advisory committee to aid the insolvency proceedings of Dewan Housing Financial Corporation Ltd. The regulator had superseded the board of the non-bank lenDewan der on Nov. 20 and appointed an administrator.
The advisory committee will include:
- Rajiv Lall, non-executive chairman, IDFC First Bank Ltd.
- NS Kannan, chief executive officer, ICICI Prudential Life Insurance Co. Ltd.
- NS Venkatesh, chief executive, Association of Mutual Funds in India.
“The Reserve Bank, in exercise of powers conferred under section 45 IE 5(a) of the RBI Act 1934, has today constituted a three-member Advisory Committee to assist the Administrator of DHFL in discharge of his duties,” the RBI said in a statement on Friday.
The committee will work together with R Subramaniakumar, former CEO of Indian Overseas Bank, who has been appointed as the administrator to manage the housing finance company as it goes through insolvency proceedings.
As per the new norms for insolvency and bankruptcy proceedings against financial services companies, unveiled by the government last week, only the appropriate regulator can initiate such an action against a stressed financial services firm. Once the regulator decides to go down this route, it appoints an administrator and an advisory committee so that the firm that continue as a ‘going concern’.
The next step in the resolution process for DHFL will be a formal reference to the National Company Law Tribunal.
DHFL first started showing signs of stress in June, when it failed to pay Rs 850 crore worth repayments on commercial paper dues. Later, the housing finance company defaulted on other dues as well, while limiting premature deposit withdrawals.
The lenders to the company had signed an inter creditor agreement shortly after the defaults started emerging, under the RBI’s new stressed asset framework. While a number of possible resolution proposals were discussed, none of theme could be finalised due to the multiplicity of creditors in DHFL’s case, which has borrowings from banks, mutual funds and insurance companies.
As part of the most recent resolution proposal, lenders intended to separate the company’s loan book into sustainable and unsustainable parts. Liabilities aggregating to Rs 48,826 crore have been identified as sustainable, State Bank of India said in a letter dated Sept. 19 to the Reserve Bank of India, a copy of which has been reviewed by BloombergQuint. This debt will continue to be serviced by cash flows from DHFL’s retail loan book.
The Rs 32,622-crore in liabilities identified as unsustainable. A part of these would be converted in to equity or equity-like instruments.
Under the insolvency and bankruptcy framework, lenders and other creditors to the company will come together to create a committee of creditors, which will review resolution plans to arrive at the best plan to resolve the stress in the company. In case the creditors choose to sell the company to a new buyer, the RBI will have to clear them on its “fit and proper” guidelines.