As per norms laid down by the banking regulator, lenders are required to sign an Inter-creditor Agreement (ICA) to finalize a resolution process. But the involvement of entities other than banks in this case has complicated the process.
Lenders to Dewan Housing Finance Corporation (DHFL) may take over the troubled housing finance company (HFC) as a temporary measure if the consortium fails to find new investors. The resolution plan would also require the approval of all regulators in order to materialize, lenders said.
"If we are not able to get a good investor at this point of time, then maybe (we will take stake), but it will not be a long-term proposition. It may happen. It is one of the ideas," said Rajkiran Rai G, Managing Director and Chief Executive Officer of Union Bank of India, which is leading the consortium. He added the measure, if agreed upon by all stakeholders, will be for a short-term.
"Creditors are meeting regularly. We are waiting for the mutual funds also to come on board," Rai said on August 20.
DHFL owes Rs 80,000 crore to banks, mutual funds, insurers and pension funds. As per norms laid down by the banking regulator, lenders are required to sign an Inter-creditor Agreement (ICA) to finalize a resolution process. But the involvement of entities other than banks, in this case, has complicated the process.
While banks signed the ICA last month, other lenders like mutual funds are awaiting approvals from their respective regulators.
"It is not a normal resolution process. There is a financial company involved. Here, the creditors are the banks, the insurance companies, the PF funds and the pension funds," Rai said. He added that it may not be easy for mutual funds to come on board due to the nature of their business.
"Mutual funds are operating in a totally different area. Suppose, a resolution plan involves a payout over 10 years, how will a mutual fund handle it? It is a very complicated process," Rai said. "But, the only thing I can say is that the resolution plan which is under discussion can be the best plan under the given circumstances," he added.
State Bank of India (SBI) Managing Director Arijit Basu said the resolution plan was being evaluated by the consortium and that the bondholders have asked for more clarity before signing the ICA.
"All the regulators have to come on board to give approval. That is moving forward in a very coordinated and systematic manner. All regulators and players are working jointly on the resolution," Basu said.
He added that the Reserve Bank of India (RBI) and the government have announced enough measures to deal with the stress in the HFCs. "One of them is that HFCs are regulated by RBI. It gives RBI immense powers and immense opportunity to look at one or two resolutions that they can also assist in the process," Basu said.These comments come on the day when RBI deputy governor NS Vishwanathan said the regulator had given a lot of freedom to banks to deal with stressed assets and they must ensure timely resolution in such cases.The Great Diwali Discount!
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