DHFL owes Rs 6,188 crore towards FD holders, who are mostly retail investors. DHFL owes Rs 6,188 crore towards FD holders, who are mostly retail investors.

The fate of close to Rs 15,000 crore of retail investors money stuck in non-convertible debentures (NCDs) and fixed deposits (FDs) of Dewan Housing Finance Corporation (DHFL) remains uncertain, even as the housing finance firm is being taken to bankruptcy proceedings by the Reserve Bank of India.

DHFL owes Rs 6,188 crore towards FD holders, who are mostly retail investors. Chances of nearly one lakh FD holders getting back their money are slim as FDs are unsecured instruments and the firm has been defaulting on secured loans and debt. On the other hand, recovery of Rs 9,000 crore stuck in secured NCDs of around 85,000 retail investors hinges on the IBC proceedings, sources said.

According to Indian banking laws, secured debt — mainly banks which have given over Rs 38,000 crore loans and NCDs — have the first charge on recovery. Repayment of unsecured debt comes after that. The total unsecured debt works out to Rs 9,818 crore. This includes commercial paper (CP) of Rs 100 crore, perpetual debt of Rs 1,263 crore, subordinate debt of Rs 2,267 crore and public deposits of Rs 6,188 crore. Bankers are skeptical about full recovery of debt through the Insolvency and Bankruptcy Code (IBC) process. “We don’t expect full recovery in DHFL. There will be a haircut. Look at what happened in Jet Airways, nothing has come so far. In the IL&FS case, they talk of only 50 per cent recovery by March 2020,” said an official of a nationalised bank.

Total liabilities of DHFL are Rs 83,873 crore, according to DHFL’s draft resolution plan released in September. Of this, it owes banks Rs 27,527 crore, NCD holders (including retail investors, mutual funds and others) Rs 41,431 crore, National Housing Bank (NHB) Rs 2,350 crore and external commercial borrowings (ECB) Rs 2,747 crore. The big question being asked by bankers is: how and from where will DHFL get funds to repay lenders and investors?

Retail investors are now running from pillar to post to recover their money in NCDs and FDs. “Retail investors in NCDs are very small people, including senior citizens, who have very limited resources of income. They should be paid in full before FD holders or any other retailers,” tweeted an investor. “My dad who is 64 now and about to have a bypass surgery has kept almost all his life savings in DHFL. Now we are stuck with no money. God knows when we will get our own money. FD holders’ priority should he higher, specially senior citizens,” said another worried investor who complained to the authorities.

In their complaint to the government, NCD holders said, “In the draft resolution plan, it is proposed to pay NCD and FD holders at par. This is against the law as presently drafted, and against principles of natural justice. Investors have put their hard earned money assuming that they will be repaid on par with banks but now they are junior to banks and MFs, and on par with FD holders.”

Investors also blamed the debenture trustees — Catalyst Trusteeship — for slow proceedings in the recovery process. “The debenture trustee will protect the interest of the NCD holders in the event of default by us in regards to timely payment of interest and repayment of principal and they will take necessary action at our cost,” DHFL’s prospectus had said.

It also said the company will maintain a special corpus called the debenture redemption reserve (DRR). This would be 25 per cent of the NCDs’ values outstanding which will be parked in a bank fixed deposit. This money will not be utilised for any other purpose other than repayment of debentures maturing during the year, the prospectus had said.

However, Finance Minister Nirmala Sitharaman proposed to scrap the obligation of DRR, a provision that requires NBFCs to build a reserve over the term of the debt to repay investors, in the Union Budget tabled in July. It was often termed as “a stumbling block for NBFCs to raise money via public bonds”. Now, investors are ruing the Centre’s decision to scrap DRR which would have ensured at least 25 per cent of NCD repayment.

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