The DHFL crisis has added to mounting concerns over NBFC liquidity crunch. (Photo: BloombergQuint)

UTI Mutual Fund Writes Off Entire Exposure To DHFL

UTI Mutual Fund on Friday said it has written off its entire exposure to the securities of crisis-hit Dewan Housing Finance Corporation Ltd. that has defaulted on repayments. The latest developments at DHFL has added to mounting concerns over the health of non-banking financial companies.

On June 4, DHFL failed to make interest and principal payments that were due. Ratings agencies—CRISIL Ltd., ICRA Ratings Ltd. and CARE Ratings Ltd.—downgraded their ratings on the company's debt papers citing inadequate liquidity, among other factors.

"In light of the above development, UTI Mutual Fund anticipates that there would be enhanced pressure and legal action on DHFL from all creditors, including exercise of early redemption clause and legal options by various lenders.

Also read: DHFL Repays Rs 276 Crore To Investors And Depositors

"This is expected to further delay the recovery efforts of the company in disposal of its assets in an orderly manner," UTI Mutual Fund said in a release. The fund house said it has "increased the markdown to DHFL debt securities from 75 percent to 100 percent in the schemes which has an exposure to DHFL". If there is any recovery in future, the provision would be written back to the schemes on actual receipt basis, it added.

State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India are the sponsors of UTI Mutual Fund.

The fund house has also introduced an exit load on certain schemes from Friday. The schemes are UTI Treasury Advantage Fund, UTI Ultra Short Term Fund, UTI Short Term Income Fund, UTI Dynamic Bond Fund and UTI Bond Fund.

Also read: Mutual Fund NAVs Hit As DHFL Delays Interest Payment On Bonds

"The introduction of the exit load is on prospective basis (i.e. will be applicable only to investors who invest in these schemes from June 7, 2019 onwards and not to existing investments)," the release said.

The fund house noted that it has been done to deter speculative action in the funds and to safeguard the interests of the existing investors.

Also read: All You Need To Know About The DHFL Crisis

Amid liquidity woes, DHFL on Friday said it was taking all necessary steps to meet repayments within the seven-day grace period and prevent any future default.

On Thursday, Tata Asset Management Ltd. said it has proposed to create segregated portfolio of securities of DHFL held by three schemes immediately after expiry of mandatory load free exit period of 30 days. The schemes are Tata Corporate Bond Fund, Tata Medium Term Fund and Tata Treasury Advantage Fund.

Also read: ICICI Prudential AMC’s Nimesh Shah Has Tips For Investors After DHFL Crisis

On Thursday, Reserve Bank of India governor Shaktikanta Das said that the central bank was closely monitoring the troubles brewing in the NBFC sector due to the liquidity crisis and will take all measures to ensure financial stability.

Bloomberg Quint

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