The Reserve Bank of India (RBI) has revoked the deposit-taking status of Dewan Housing Finance Ltd (DHFL). DHFL is the first financial services entity to be referred for bankruptcy proceedings and the banking regulator has reclassified it as a non-deposit taking housing finance company (HFC), before approving the Piramal group's bid to take over DHFL towards the end of the resolution process.
This was revealed on page number 14 of the 7th June order issued by the Mumbai bench of National Company Law Tribunal (NCLT) last week approving the Rs37,250-crore bid by Piramal Capital & Housing Finance.
The changes were made in February 2021, after RBI gave a no-objection to the 25 January 2021 application by R Subramaniakumar, the RBI-appointed administrator, citing Rule 5 of its FSP (financial services providers) Rules.
Unlike DHFL, which accepts public deposits, acquirer Piramal Capital & Housing Finance (PCHFL) is a non-deposit taking non-banking finance company (NBFC).
The Piramal group had long been eyeing to convert PCHFL into a deposit-taking NBFC after acquiring DHFL but RBI has apparently turned down that request.
"Pursuant to the FSP Rules, the RBI communicated its ‘no objection’ on February 16, 2021 for change in control, ownership and management in DHFL in terms of Rule 5(d)(iii) of the FSP Rules and also in terms of para 3 of NHB circular housing finance companies approval of acquisition or transfer of control Directions, 2016, subject to (inter alia) the condition that the deposit-taking status of DHFL will be revoked and merged entity of DHFL and Piramal Capital shall function as a non-deposit taking housing finance company," the NCLT order mentioned.
In the concluding part of the order, the bench reiterated that the resolution is subject to the fact that RBI’s non-objection, which is based on the condition that "the status of the corporate debtor (DHFL) is changed from a deposit-taking housing finance company to a non-deposit-taking company."
Meanwhile, NCLT has asked lenders of DHFL to reconsider the distribution of funds that they will receive from the Piramal group to fixed deposit-holders and provident funds within two weeks. Accordingly, the lenders are to decide the final payout for public depositors by early next week.
NCLT, in its 7th June order, had said that considering the number of small investors and senior citizens who had deposited their hard-earned money and who now face a financial crisis due to the pandemic, the resolution plan should provide for an increased share for them.
It may be noted that lenders are not bound to make a payment that is more than what they are required to in terms of the resolution plan. While the Tribunal has said that it does not expect the bidder to up his offer, it has asked the creditors to meet and consider a higher payout
for small investors on compassionate grounds. These include public depositors, fixed deposit-holders, NCD-holders, small investors, Employees Provident Fund Trust, and Army Group Insurance Fund.
Legal experts say that if the committee of creditors (CoC) agrees to give more to the FD-holders, then it could set a precedent for other insolvency cases.