SynopsisThe woes of both the beleaguered DHFL and Srei entities arise from the collapse of IL&FS. The liquidity crisis after the collapse of IL&FS in 2018 led to DHFL going to the wall
In December 2012, the Reserve Bank of India finally got, via the Banking Laws Amendment Bill, a long-standing demand to supersede or supplant the board of directors of a bank for up to a year if it feels that the board is not working in the interest of shareholders and depositors. The central bank could then run the troubled bank by appointing an administrator till a new board is appointed or the troubled entity sold off. In such a scenario, while shareholders wealth declines, depositors money stays safe.
This is only the second time RBI has superseded a lender’s board. It had taken such action against mortgage lender DHFL, which was bought by Piramal Enterprises after resolution.
The build-up to the RBI action was a consortium of lenders led by UCO Bank last week approaching the central bank on pursuing recovery of dues from the Srei Group after loans to the financier officially qualified to be moved to non-performing assets (NPA).
Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.
The woes of both the beleaguered DHFL and Srei entities arise from the collapse of IL&FS. The liquidity crisis after the collapse of IL&FS in 2018 led to DHFL going to the wall. “The implosion of IL&FS in 2018 led to a liquidity crises in the financial sector for NBFCs, including Srei. This hit business growth. In addition, problems in the infrastructure sector – road and power – led to stress on the books of Srei,” said a banker to Business Standard.
Lenders can now take the Srei entities to the National Company Law Tribunal (NCLT) for insolvency proceedings. The NCLT & NCLAT are quasi-judicial bodies in India that adjudicate issues relating to companies.
The Piramal-DHFL resolution wound its way through NCLT after DHFL became insolvent in 2019.
The Piramal Group finally completed the acquisition of DHFL for Rs 34,250 crore which included a cash component and non-convertible debentures on September 30, 2021.
The total consideration of Rs 34,250 crore included an upfront cash payment of nearly Rs 14,700 crore and issuance of debt instruments of nearly Rs 19,550 crores (10-year NCDs at 6.75% p.a. on a half-yearly basis).
In what is the largest recovery of stressed assets, banks will get a mix of cash and NCDs in the DHFL insolvency resolution case.
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