DHFL lenders to make provisions from Dec quarter as auditor checks company

Lenders to Dewan Housing Finance Corporation Ltd. (DHFL) will make provisions worth Rs 6,300 crore for their exposure to the embattled housing finance company from the December quarter, said sources in the banking industry.

Banks have an exposure of Rs 38,000 crore in DHFL, which owes Rs 84,000 crore to mutual funds, retail depositors, and others.

A source in the banking industry said audit firm KPMG’s final forensic report is expected any time, and banks will make 100 per cent provisioning for DHFL--if the account is termed as a “fraud” account by the Reserve Bank of India.

“If the account is termed as a fraud account following the KPMG report, then the banks will make entire provision of its exposure over the next four quarters,” said the source. State-owned Union Bank of India, the lead bank of DHFL, has said its audit had indicated the company had diverted Rs 20,000 crore to shell companies.  

State Bank of India and Union Bank of India have made provisions for their DHFL accounts in the second quarter. 

According to an earlier resolution plan for DHFL, Indian lenders was estimated to take a 40 per cent haircut--thus the provisioning for the entire account was expected to between Rs 16,000-Rs 17,000 crore. This was before the Reserve Bank of India (RBI) sent the company to the NCLT for debt resolution. The haircut is the amount a bank foregoes to make the account as a “standard” account.

Lenders are also playing safe as the matter has reached the courts with Bombay High Court hearing the matter following an appeal made by Reliance Nippon Life AMC seeking its dues. One of the fixed deposit holder has also moved the Supreme Court asking for his dues. DHFL owes close to Rs 15,000 crore to retail investors who invested in the fixed deposits and non-convertible debentures (NCDs).

Meanwhile, the Uttar Pradesh government has decided to step in the DHFL crisis after the company defaulted on paying the dues of Uttar Pradesh Power Corporation Ltd (UPCCL). In an order on Saturday, the UP government said it would ensure the return of funds from DHFL by giving interest free loans to UPCCL to pay their employees. Over 45,000 employees of the corporation were agitating after DHFL defaulted to the PF trusts.

The UP government had earlier announced a Central Bureau of Investigation (CBI) into the investment worth Rs 4,100 crore made by UPCCL in DHFL. But there has been no action post the announcement. The Serious Fraud Investigation Office (SFIO) is also investigating the company.

Lenders’ take

• Banks stare at Rs 38,000-cr provisioning over 4 qtrs 
• SBI, Union Bank have begun provisioning from Sept qtr
• UP to ensure return of UPPCL PF money invested in DHFL