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DHFL crisis | Is it too late for MFs to pressure Wadhawans to recover money?

In October, Edelweiss Mutual Fund, Reliance Mutual Fund (now Nippon India Mutual Fund), Axis Mutual Fund, Tata Mutual Fund had moved NCLT seeking recovery of their dues from DHFL

November 25, 2019 / 04:30 PM IST
DHFL (File Image: PTI)

DHFL (File Image: PTI)

After the RBI's intervention in DHFL's affairs, fund houses are looking to put pressure on the NBFC's promoters to recover funds. This follows a forensic audit of the housing financier's books, according to a report in The Economic Times.

The Wadhawan family, DHFL's promoters and a group entity own over 39 percent in DHFL.

However, mutual fund experts have said that fund houses cannot extract or pressure the promoters directly.

“There are two reasons. One, the NCLT may now take a call on DHFL's and the promoters' assets. Second, the management is in the hands of a RBI-appointed committee to advise how much borrowings are recoverable. So, now, all the repayment decision for mutual funds will be taken via RBI under information to SEBI,” said an ex-SEBI officer who worked in the mutual fund department.

Fund officials have also said that the matter is with the National Company Law Tribunal (NCLT) as, in October, Edelweiss Mutual Fund, Reliance Mutual Fund (now Nippon India Mutual Fund), Axis Mutual Fund and Tata Mutual Fund moved NCLT seeking recovery of their dues from DHFL.

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The central bank recently took control of DHFL's board and appointed a three-member advisory committee to assist the administrator, Subramaniakumar, the  former MD and CEO of Indian Overseas Bank.

One of the members of the committee is NS Venkatesh, the chief executive of the Association of Mutual Funds in India (AMFI).

“With N S Venkatesh on the panel, mutual funds will have a say in the recovery process. Plus, they can ask that to clear dues of the secured loan holders first. Also, with RBI setting up a panel, there will be orderly unwinding of recoverable assets,” said a CEO of a mid-sized fund house on the condition of anonymity.

As per estimates, the beleaguered home financier owes Rs 83,873 crore as of July 6 to banks, the National Housing Board, mutual funds and bondholders, including retail bondholders.

As of July 6, DHFL's secured debt was Rs 74,054 crore while the unsecured debt stood at Rs 9,818 crore.

DHFL has been facing a liquidity crisis since September 2018 and has so far paid Rs 41,000 crore of its financial obligations through a securitisation of assets and repayment collections.

According to mutual fund industry experts, it appears too late for mutual funds to plan pressuring about recovery through raising resources by the Wadhawan family since the matter is under the RBI Committee now, which will proceed depending on the forensic audit report.

The crumbling of DHFL finance is yet another failure of corporate governance causing wealth destruction at a large scale. Also, lenders like mutual funds need to be on toes for the continuous assessment of the creditworthiness of borrowers before it destroys scheme NAVs .

Shares of DHFL crashed to Rs 22.10 on November 25, down 85 percent compared to Rs 150.50 on March 29. On October 30, the stock touched a yearly low of Rs 15.15 talks of secured borrowing by MFs being better than unsecured does not hold substance.

MFs like banks and insurance institutions are dependent on the decision of the RBI Committee to bring out a decision on partial recoverable assets.

The casualty happened in part for relying on only credit rating and not having in-house or industry-level debt market analysis, which left mutual funds grappling from one end to other for recovery.
Himadri Buch
first published: Nov 25, 2019 04:04 pm

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