RBI supersedes DHFL board: What lies ahead for the NCLT-bound lender

The Reserve Bank of India (RBI), on November 20, superseded the board of directors of Dewan Housing Finance Corporation (DHFL) and appointed former banker R Subramaniakumar as the Administrator.

The move was taken on account of "governance concerns and defaults by DHFL in meeting various payment obligations," the RBI said.

The banking regulator added that it plans to initiate the process of resolution under the Insolvency and Bankruptcy Code (IBC) and would also apply to the National Company Law Tribunal (NCLT) for appointing the Administrator as the Insolvency Resolution Professional.

Subramaniakumar is former MD & CEO of Indian Overseas Bank. As per the new norms, the Administrator will have the same responsibilities and powers as that of an insolvency professional.

The decision came after lenders approached the regulator to explore the NCLT route for recovering their dues from the housing finance company (HFC). DHFL's total debt is estimated at Rs 88,000 crore.

DHFL's troubles began in June when it first defaulted on its payments. Lenders to DHFL signed the Inter-creditor agreement as per regulatory norms but the resolution plan devised by them never took off due to non-participation of DHFL's other creditors like mutual funds, fixed deposit holders and bondholders.

The lack of clarity on the treatment of financial institutions under the IBC and ongoing fraud investigation by agencies also hampered the resolution process for DHFL. The account has been classified as non-performing asset (NPA) by some lenders, while others are awaiting reports from investigative agencies to declare the HFC as fraud.

Earlier this week, a special window under Section 227 of IBC made way for the resolution of stressed systemically important financial companies, empowering regulators to refer such cases to the NCLT.

As per the powers granted to the banking regulator in the budget this year, RBI can appoint an advisory committee of three or more experts to assist the Administrator.

Once the Committee of Creditors finalise a resolution plan, the Administrator will seek 'no objection' from the regulator on who takes over the management of DHFL. The RBI will issue 'no objection' based on the fit and proper criteria.

Also, the DHFL's license and registration will not be cancelled or suspended during the process, which means that the HFC can continue with collections from borrowers.

The interim moratorium will commence on the date of initiation of the resolution process by the RBI. However, the provisions of moratorium will not apply to any third-party assets that include funds or securities.

One of the proposals that were discussed earlier, was to split DHFL's debt into sustainable (retail loans) and unsustainable debt (builder loans). It involved conversion of debt into equity and bringing in new investors.

However, with RBI now in the picture, it is likely that the resolution plan assures that DHFL's retail customers will be paid out upon maturity of their deposits.