InvestorQ : I have a question on the Dewan Housing stock. The government and RBI are infusing liquidity and yet Dewan Housing condition is worsening. Why is it so?
NISHA Nayak made post

I have a question on the Dewan Housing stock. The government and RBI are infusing liquidity and yet Dewan Housing condition is worsening. Why is it so?

Answer
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1 year ago


There is a difference between liquidity and solvency and the problem of Dewan Housing is not one of liquidity alone but also of solvency. Let us look at some of the key aspects why the problem at DHFL is more than just liquidity and why the problem could get worse.

· Government infuses liquidity through banks but banks are today unwilling to lend to DHFL because of the defaults. So, even though the RBI is providing liquidity support to the banks, these banks are not willing to lend to Dewan Housing.

· Dewan Housing has a slightly bigger problem of maturity mismatch too. Here is how it works. Dewan used to typically borrowing short term debt through CPs and short term debentures. These funds were used to give housing loans which are for 15 to 20 years. When repayments came up, Dewan would borrow and repay the old loans. This worked till the banks stopped funding DHFL. That is when they had to repay loans and did not have liquidity. Also long term home loans cannot be liquidated overnight and so the money is stuck. That is how the problem got compounded.

· In addition, there are also allegations of siphoning out money by the promoters which the Enforcement Directorate (ED) is currently investigating. Till these charges are proved either ways, there will be an overhang on this stock.

· Lastly, the funding sources have totally dried up. Apart from banks, mutual funds and insurance companies are also unwilling to lend to Dewan Housing due to past defaults. Also once the status of the rating is downgraded to Default Category, it is impossible to get any fresh funding. These are the points you must consider. That is the reason the problems at Dewan Housing appear to be worsening by the day.