InvestorQ : What does it mean for shareholders and depositors of Dewan Housing when the RBI takes over the management of the company?
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What does it mean for shareholders and depositors of Dewan Housing when the RBI takes over the management of the company?

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Sam Eswaran answered.
2 years ago
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Actually the RBI has superseded the existing management of Dewan Housing and they have appointed the former Chairman of IOB as the head of DHFL to manage the liquidation of the company. As per the latest amendment, the RBI is authorized to arrange the liquidation of NBFCs with assets of more than Rs.500 crore and DHFL falls in category. This are the key implications.

· RBI has superseded the board of Dewan Housing and appointed an administrator in its place to clear the way for referring the company to the National Company Law Tribunal (NCLT). Mr. Subramaniakumar, former managing director of IOB will be the administrator.

· DHFL is the first HFC to be referred to the bankruptcy tribunal under new rules notified on 15 November for NBFCs with assets in excess of Rs.500 crore. RBI has pointed to governance concerns and defaults in meeting payment obligations as the reason.

· As the next step, RBI will initiate the process of resolution of the company under the Insolvency and Bankruptcy Code. Under the new guidelines, only a regulator can refer a financial services company (NBFC) to the bankruptcy tribunal. This is similar to the PMC Bank case where RBI superseded the board.

· This is expected to lead to quicker resolution of DHFL’s stress and also set a precedent to resolve stress in the financial sector companies, especially the ones that are large and systemically important.

· Now the plan of lenders converting a part of the debt into equity and taking a 51% stake in the lender is out. DHFL is already fighting a legal battle in the Bombay high court by a set of mutual funds that had purchased its NCDs. There are also fixed deposit holders and retail NCD holders awaiting the dues. Now this will come as per the waterfall.

This closes all other doors for DHFL and now it will become a basket bankruptcy case and could be an important precedent for NBFCs.

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