DHFL crisis: Bankers to sign inter-creditor agreement
The lenders are trying to rescue DHFL with outstanding debt of over Rs 1 lakh crore and prevent a default.
Bankers to DHFL met on Monday & agreed in principle to sign an ICA which is mandatory for any revival plan according to the new framework for restructuring of stressed loans which came into effect from June 7.
“Monday’s meeting was a preliminary one to decide on signing the ICA. The large banks have now agreed to sign the ICA which will form the basis of any restructuring plan. Banks have now decided to meet again on July 5 to sign the ICA. A resolution plan will be debated only after the ICA is signed,” said a senior bank executive.
Monday’s meeting was attended by a group of seven banks including the State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India and Bank of India (BoI). The group of seven is likely to approach DHFL by July 10 with a new proposal on revising loan terms.
SBI has the largest exposure with Rs 10,000 crore. After these banks sign a common ICA, other lenders will be also be taken on board. Out of the total debt owed by the company around 40% of Rs 40,000 crore is estimated to be bank loans. DHFL has borrowed close to 50% of its debt from market borrowings like non convertible debentures (NCDs).
To be sure, DHFL has not yet defaulted on paying back loans to any of the lenders. Last month, it defaulted on Rs 375 crore of commercial papers a part of which is still unpaid. It had also missed nearly Rs 1000 crore on interest payments on NCDs sold a year ago which was subsequently paid back. Banks however say the action is a pre-emptive one to ensure that the NBFC does not eventually default.
“In its June 7 circular the RBI has clearly said that a resolution plan has to be finalised for borrowers which are financial distress which is what DHFL is in. Though the company is not in default with banks it had missed some NCD interest payment which was subsequently cured. The reference date of June 29 has been taken into account after considering these two missed payments. It will take some time to finalise a concrete resolution plan,” said a banking executive.
The June 7 RBI circular said the lenders will initiate a resolution plan even before a default. “Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default. In any case, once a borrower is reported to be in default by any of the lenders (they) shall undertake a prima facie review of the borrower account within thirty days from such default. During this period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery,” RBI said.
DHFL may have breathed easy after this meeting as bankers have shown enough flexibility to revise the terms of loans expected soon, said an executive present in the meeting.
"Bankers primarily gained confidence from the quality of underlying assets that the troubled company has," the person said.