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DHFL exposure: RBI rejects banks’ ‘Trust’ proposal

RBI declines the proposal by banks to grant relief from provisioning for the troubled mortgage lender.

, ET Bureau|
Updated: Oct 19, 2019, 08.49 AM IST
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Agencies
DHFL
There is an impasse over the resolution plan for the mortgage lender as several mutual funds are refusing to sign the intercreditor agreement.
The Reserve Bank of India (RBI) rejected a proposal by banks that would have allowed them provisioning relief to the tune of Rs 6,000 crore on borrowings by troubled mortgage lender Dewan Housing Finance Corp. Ltd (DHFL), said two people aware of the development. This could dent the December quarter earnings of Indian banks.

Banks have a total exposure of Rs 40,000 crore to DHFL and will be required to make 15% provisioning on the account by the end of the December quarter.

The lenders had proposed the creation of a trust that would hold 51% of the company following the conversion of some part of debt to equity. This could then be classified as an “ownership change,” said one of the people cited above. Under a clause in the regulator’s June 7 circular on the stressed asset resolution framework, additional provisions on an account can be reversed if ownership changes.

“The RBI said that equity holding through a trust cannot be considered a change in ownership as the loans are sitting on the banks’ books,” said a person aware of the development.
DHFL infograph 123

If nonconvertible debentures (NCDs) are included, banks have an exposure of around Rs 47,000 crore to DHFL. The total debt of DHFL is pegged at around Rs 1 lakh crore.

“As of now DHFL is not an NPA (nonperforming asset) in the books of the banks,” said the person cited above.

Impasse Over Resolution Plan
“But after the proposal is rejected, they will have to provision about 15% of their exposure in the books,” the person said. RBI, State Bank of India and DHFL didn’t respond to queries. State Bank of India has an exposure of about Rs 10,000 crore to DHFL. Other state-owned lenders to DHFL include Bank of India, Canara Bank and Punjab National Bank. Union Bank of India leads the consortium of lenders while the steering committee includes SBI, Syndicate Bank and Canara Bank. There is an impasse over the resolution plan for the mortgage lender as several mutual funds are refusing to sign the intercreditor agreement. While nonbanking lenders have taken a hit on advances to DHFL, banks have yet to designate such credit as nonperforming assets. NPAs require additional provisions, denting lenders’ profit margins.
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