Mutual funds object to securitisation deals by DHFL

Negotiations on the Dewan Housing Finance Corp. Ltd (DHFL) debt resolution plan seem to have hit a roadblock. Mutual funds have objected to securitisation deals undertaken by DHFL since the company’s repayments woes began, said three people with knowledge of the matter.

While the mutual funds have taken a 70% mark-to-market loss on their exposure to DHFL, they alleged at a recent meeting that bankers are buying DHFL’s retail portfolio piecemeal to avoid haircuts, said one of the people cited above. They have asked the banks to stop any further securitisation deals for the ₹35,000 crore retail portfolio on the books of the non-bank lender.

“In the recent meeting, mutual funds raised objection to ₹1,000 crore portfolio securitised by DHFL in the past one month,” said the official who had knowledge of the meeting. “There were also issues raised on a ₹3,000 crore loan takeover by a large state-owned bank in September quarter.” This was likely a reference to Bank of Baroda acquiring DHFL loans against its exposure to the company.

Inter-creditor Agreement
DHFL, which owes the financial system at least Rs 1 lakh crore, started facing redemption pressure soon after Infrastructure Leasing & Financial Services (IL&FS) defaulted on payments last year. Banks, mutual funds and insurance companies are trying to resolve DHFL’s debt under the Reserve Bank of India’s June 7 framework for stressed asset resolution.

But they have hit an impasse as several mutual funds have refused to sign the inter-creditor agreement, which is key to the resolution plan.

“How is it fair that, while we have already taken a 70% hit on our exposure to DHFL, banks continue to keep it as a standard account, don’t bear the provisioning hit and make money through securitisation deals — this has to stop,” said another person involved in the discussions.

The Bombay HC has restrained DHFL from making any further payments or disbursements to creditors following a plea by mutual funds, which collectively own almost 10%, or close to ₹5,000 crore, of the total DHFL debt.

ET reported October 19 that the banking regulator had rejected a proposal by banks that would have allowed them provisioning relief to the tune of ₹6,000 crore.