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100,000 DHFL Fixed Deposit Holders Risk Losing Savings Amid Allegations of Fraud, Fund Diversion

The revelations have come as a setback for DHFL’s lenders, primarily commercial banks that have an exposure of Rs 38,342 crore to the finance company, as the government could initiate a probe by the SFIO.

News18.com

Updated:October 31, 2019, 9:48 AM IST
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100,000 DHFL Fixed Deposit Holders Risk Losing Savings Amid Allegations of Fraud, Fund Diversion
File photo of DHFL logo (Image : Reuters).

New Delhi: As allegations of fraud and fund diversion grip the mortgage lender, more than 100,000 fixed deposit holders of Dewan Housing Finance Corp. Ltd (DHFL) risk losing their savings.

According to a Mint report, instances of fund diversions, as revealed in a forensic audit by accounting firm KPMG, could potentially derail a resolution plan for DHFL that has been in the works for several months. The revelations have come as a setback for DHFL’s lenders, primarily commercial banks that have an exposure of Rs 38,342 crore to the finance company, as the government could initiate a probe by the Serious Fraud Investigation Office (SFIO). If SFIO starts an investigation, all repayments are likely to be frozen.

Under the proposed debt recast plan, lenders were to take a 51 per cent stake in DHFL by converting a portion of the company’s debt into equity. This plan is being finalized under the 7 June stressed asset circular of the Reserve Bank of India.

The fixed deposit holders, many of them retirees who had invested their lives’ savings, were among the first in line to be paid back their money. As on 6 July, the company had public deposits of Rs 6,188 crore, which fell from Rs 10,166.72 crore at the end of March 2018. On 21 May, DHFL stopped accepting public deposits and renewals of existing deposits. It also stopped premature withdrawals of existing deposits to “help reorganize its liability management".

According to a letter from the company that Shikha Patel, daughter of depositor Manjulaben Patel, shared with Mint, the company informed her that it was unable to pay her money back as it was bound by a 30 September Bombay high court order that disallowed all payments to fixed deposit holders without its permission.

While stopping premature deposit withdrawals, DHFL had promised in May to redeem fixed deposits in case of a medical or financial emergency, subject to fulfilment of appropriate documentation. However, there are also cases where premature withdrawals on health grounds have not been accepted by the company.

Meanwhile, the draft debt resolution plan, being finalized by lenders, proposes a staggered 10-year payout to public depositors with zero interest. However, depositors’ hopes of a quick approval of the resolution plan have all but sunk with the KPMG forensic audit finding possible diversion of funds and an impending SFIO probe.

Once the investigative agency takes up the case, the proposed debt recast plan will take a back seat because it is unlikely that both can run simultaneously, said the chief executive of a public sector bank. “We will have to wait for the investigation to be over for implementation of any resolution plan. Only if the SFIO finds that there was no mala fide intent on part of the promoters can the restructuring deal work," the banker said on condition of anonymity.

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