DHFL – WHO WILL BELL THIS RAT?

The saga of DHFL just keeps on getting more sordid; the bids have come in but instead of a happy ending, it looks like a complete tear-jerker with banks, especially SBI, which would have no more tears to shed – just a dry, hoarse cry of agony from the pit of the stomach.  But the stock is among the top gainers on the BSE today since opening as for the punters, its an opportunity.

SBI-led banks were expecting to rake in Rs.85,000 crore after it put the debt-laden housing finance company under the Insolvency and Bankruptcy Code (IBC) hammer. But what we learn is that out of the four bidders - Adani Group, Piramal Group, US-based asset management company Oaktree Capital Mangement, and SC Lowy, no one has offered anything even over Rs.20,000 crore.

This means we are looking at banks taking a hair-cut of at least Rs.50,000 to Rs.65,000 crore on account of DHFL alone.

Oaktree is the only company which has offered to take the entire company but its bid price – Rs.20,000 crore. Adani has bid for the wholesale portfolio and slum redevelopment assets and its price is very low at Rs.3000 core. These two together were valued earlier at Rs.40,000 crore.

SC Lowy is said to have also bid for what Adani did but its price is reportedly the lowest amongst all.

In Feb, there were 24 companies which had submitted expressions of interest - AION Capital, Adani Capital, Hero FinCorp, KKR Credit Advisors (US) LLC, Oaktree Capital, Morgan Stanley, Goldman Sachs Group, Inc., Deutsche Bank AG, Warburg Pincus, SSG Capital Advisors, LLC, Edelweiss, Lone Star, and Blackstone. And now there are only four which actually bid.

Apart from the pandemic and the impact on the realty sector, what really spooked off the balance 20 was the forensic audit report by Grant Thornton – it unearthed a Rs.14,500-crore fraud in DHFL’s books - Rs 9,320-crore in the wholesale books, a Rs 1,707-crore loss on the SRA account, and another diversion of Rs 3,000 crore in retail loans. Almost everyone in the industry confer that recovering these loans is next to impossible.

SBI has the biggest exposure of around Rs.10,000 crore. The comes Bank of Baroda at around 4500 crore, Yes Bank at Rs.3700 crore, Bank of India at Rs.3500 crore, Union Bank of India at Rs.2500 crore, Canara Bank at Rs.2400 crore, Syndicate Bank at Rs.1600 crore and IndusInd Bank at Rs.1600 crore.

Time and again, we have enough data showing us that the corporate sector is indeed responsible for a major part of the rising bad loans causing inconveniences to the honest borrowers. Yes, NPA is a creation of the corporate sector where they borrow and do not pay on time or many a times, never pay.

If you and me go to the bank and ask for a loan of Rs.10 crore, from PSU banks, what is the likelihood of getting it? Zero or maybe roughly 4-5% of the teeming 1 billion populations might be able to get. And these will be individuals who would be well connected and already rich. If they default? Well, the same connections help them get another loan or get the loan restructured. So basically, banks do not have the courage to bring such fraudsters to task as they fear trouble from these ‘connections’. So, doesn’t it all, ultimately boil down to being well connected and you can get away with anything? In India, apparently, connections is the only way to get anything, even space in an ICU for Covid requires connections!

So why do we have this hypocrisy in banking? While a small individual, for a smaller loan, is punished hard and long, the bigger fraudsters are not only allowed to default, but they are granted more loans despite a pathetic credit history. Forget arresting, their personal properties are not ever attached. And we cannot know the names of the defaulters because RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses. And these corporate honchos have today burdened the entire banking system and made healthy banks into debt holes. Aren’t they economic terrorists’?

Bad loans cannot be blamed entirely on high interest rates and lower economic growth. Banks are to be blamed because when it comes to big companies, they have no verification process of end use of the funds, poor assessment and a meaningless recovery process. Banks, as per the rule book, can get a representation on the Board of the borrower firm but how many banks have actually exercised that rule?

Today morning, from prison, the promoter of the company, Kapil Wadhwan has offered to settle all claims and loans, by offering his rights, titles and interest in at least 10 projects, which he claims is worth almost Rs.44,000 crore. What took him so long when he could have done this long time ago? This is the callous attitude which is digging a deep hole for the banks. Unless the fear of repercussions came, there will be correction as once again, “connections” can help you get out of any abyss.