Lenders still to classify DHFL as NPA
Most public sector banks have held back from making bad loan provisions of advances to troubled housing finance company DHFL despite the account being ‘red-flagged’ under RBI’s framework for dealing with fraudulent disbursements. The implication of not making provisions is that lenders may have to set aside a larger amount in the future. The resolution for a red-flagged account is recovery or a new owner coming in. Given the shortfall in assets, a new owner will take over only after significant writedowns. With mutual funds not agreeing to haircuts on their investments, the likelihood of a new owner looks dim. SBI and Union Bank of India are the largest lenders to the group. A host of public and private sector banks are part of the consortium that sanctioned loans. DHFL has a total outstanding debt of nearly Rs 84,000 crore, of which Rs 26,324 crore is in the form of bank loans and Rs 41,431 crore in the form of non-convertible debentures (NCDs). DHFL has been successively defaulting in debt and has cited a court-ordered freeze on repayments when it missed its recent dues. However, the KPMG report came in October 2019, after most banks had closed their books for the quarter. Most PSU banks, while coming out with their results for the quarter ended September 2019, chose to go by the textbook definition of an NPA, where repayment is overdue by 90 days. In May 2015, the RBI, had introduced a framework for dealing with fraudulent loans. These guidelines also came up with the concept of early warning signals (EWS) and “red-flagged accounts (RFA)”. “An RFA is where a suspicion of fraudulent activity is thrown by the presence of one or more EWS. These signals in a loan account should immediately put the bank on alert regarding a weakness or wrongdoing, which may ultimately turn out to be fraudulent. A bank cannot afford to ignore such EWS but must instead use them as a trigger to launch a detailed investigation into an RFA,” the RBI said. The threshold for EWS and RFA have been kept at Rs 50 crore per bank.
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