Banks’ provision on DHFL Exposure

Banks’ provision on DHFL Exposure

It is well known that Banks exposure to DHFL is in crores and this stressed mortgage lender would be required to make provision for their exposures within few weeks period, if the account is treated as a Fraudulent account after KPMG’s expected findings.

  1. KPMG conducted a forensic audit on DHFL.
  2. KPMG’s reports have astonishing findings which reveals that there are possibilities of DHFL diverting funds in to the promoter-led entites.
  3. It is known that Banks have a combined exposure of Rs. 38,342 crore to DHFL by way of Term Loans, Non-Convertible debentures and Commercial Paper.
  4. A PSU Bank senior executive also adds that the activity relating to restructuring of DHFL is still in a work-in-progress state, and that the banks are now required to take a call on whether to get the Wadhawans (Promoter Family) to co-operate in the process of recoveries, or to declare the account as fraud if diversion is proved.
  5. If the account is declared as Fraud, it may lead to a burden of providing provisions as early as third quarter (October to December) of the current financial year.
  6. Another banker adds that the draft resolution plan itself predicted for haircuts (Loan write-offs) of around Rs 16,000 crore and hence the burden was quite expected.
  7. In the event of the account being declared as fraud, the provisioning might get increased and would be spread over four quarters. All these depend on how the Reserve Bank of India, interprets the resolution plan and the fund diversion issue.
  8. The board of Directors of DHFL who met recently and discussed about the issue, related to the Draft Report of KPMG whose services were commissioned by Union Bank of India, lead banker of the consortium on behalf of its member banks. The board has directed its members to review the observations.

DHFL’s debt dues were Rs. 83,873 crore as of 6th July 2019.  The Company’s Assets were      Rs. 89,476 crore out of which retail books showed a figure of Rs. 35,283 crore and the rest being that of the Wholesale books.

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