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    Indian banks set to take a hit of Rs 36,000 crore from DHFL writeoff


    The company’s shares are already down more than 90 per cent so far this year.

    Dewan has been struggling to repay its loans as the spreading shadow banking crisis has shut off new credit to the sector.
    By Suvashree Ghosh

    India’s surprise seizure of a troubled Indian shadow bank won’t end the woes of its lenders, faced with the risk of heavy writeoffs if Dewan Housing Finance Corp. is declared a fraudulent account.

    Only about Rs 5,500 crore of provisions would be required if the KPMG report absolves Dewan of irregular lending, Budhbhatti said.

    Dewan has been struggling to repay its loans as the spreading shadow banking crisis has shut off new credit to the sector. The company’s shares are down more than 90 per cent so far this year.

    Lenders, headed by Union Bank of India, have formed a committee to discuss a debt resolution plan, which will have to be reviewed by a resolution professional once Dewan is admitted to the bankruptcy court. In February, they appointed KPMG to look into Dewan’s books following allegations by Indian website Cobrapost that the company had diverted funds to shell companies.

    KPMG’s preliminary report, a summary of which was reviewed by Bloomberg News, said it was selected to look into Dewan’s accounts for the period between April 2015 and March 2019 to identify any “diversion of funds/misuse of funds outside the business/beyond the uses approved by lenders.”

    It said Dewan disbursed loans and advances to “inter-connected entities” and “individuals having commonality with DHFL promoter entities” amounting to Rs 19,750 crore over the period of the study, with a total outstanding amount of Rs 16,500 crore on March 31, 2019.

    The preliminary report said Dewan “could not provide a robust and well-defined tracking mechanism for end use monitoring of funds disbursed.” More than half of the connected entities had minimal operations, the report said, though it added that further research was needed as to whether they constituted related parties under the Indian Companies Act.

    Representatives for Dewan and KPMG declined to comment.

    One way of mitigating the fallout from Dewan, if irregularities are confirmed, is for banks to request special dispensation from the RBI to allow them to provide only for any amounts potentially earmarked as fraud, as opposed to the entire exposure. Banks reported Rs 95,760 crore of fraudulent accounts in the six months ended Sept. 30, according to India’s Finance Ministry.

    And while other weak shadow banks would be hurt by the fallout from a total write-off at Dewan, the stronger ones might benefit, according to Gaurang Shah, vice president at Geojit Financial Services Ltd.

    “It could also be an advantage for strong housing finance companies to garner larger market share and have better earnings,” Shah said.
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    38 Comments on this Story

    Kuldeep Ashok310 days ago
    Government is giving a gift of 42000crores to telecom industry because the promoters of these companies are rich and powerful. But the common man has no Mai baap therefore they suffer the most due to the corrupt system. The rot runs deep in our financial system . Now the one Lakh FD holders of DHFL must come together and raise their voice to get their money back.
    Ravi311 days ago
    It Is unfortunate that due to mismanagement, common man is suffering. The Government should urgently intervene and set aside sufficient funds for the FD refunds of common public. As a lesson learnt, stop NBFC''s going forward. I am also one of the victim of this financial fraud.
    Kuldeep Ashok311 days ago
    20000 Crores siphoned out of DHFL under the very nose of the Government as if we are in a banana republic. Only public Depositors especially the Senior Citizens are the ones who are left High and dry because the laws of our country are always in the favour of the Rich and powerful.
    If the RBI and NHB have even an iota of shame, self respect left in them they should take first hand priority action to ensure that the interest of over One Lakh public Depositors is kept foremost in mind during insolvency proceedings. The best way out is not to press for insolvency instead make DHFL stand on its own feet again.
    The Economic Times