Bank of Baroda (BoB) has entered into a transaction with Dewan Housing Finance Corp. Ltd (DHFL) to acquire loans worth Rs 3,000 crore against its exposure to the non-bank lender, even as a lenders’ consortium to the stressed non-bank lender considers a resolution plan, two people aware of the development said.
BoB acquired the pool of loans made by DHFL and adjusted it against its loans to the non-bank lender, the people said, requesting anonymity. Since the acquired loans are higher-rated assets, the quality of BoB’s loan book will improve.
“Now DHFL will only act as a collection agent for the bank for these loans. The bank will keep around 85-90 percent of the repayments to itself and the rest will go to DHFL,” one of them said.
Since BoB had an exposure of close to Rs 6,500 crore to DHFL, this will be pared by a little less than Rs 3,000 crore, the second person said.
“Securitisation of assets often happens, but what is different in this case is that the borrower, instead of using the money for liquidity needs, is using it to cancel future term loan repayments,” a banking analyst said on condition of anonymity.
Purchases of loan pools by banks help inject liquidity into non-bank lenders. Banks often buy loans from shadow lenders comprising securitized retail loans to meet priority sector lending shortfall.
State Bank of India (SBI), the country’s largest lender, has an exposure of about Rs 10,000 crore to DHFL, the bank’s chairman, Rajnish Kumar, told shareholders at its annual general meeting in June.
Other lenders to DHFL include Bank of India, Central Bank of India, Andhra Bank, Canara Bank, Punjab National Bank and Corporation Bank.
As of December, the non-bank lender had an outstanding debt of Rs 1 trillion, of which 38 percent was in the form of bank loans, 47 percent from debt markets and 10 percent through deposits.
Emails sent to DHFL and BoB seeking comments remained unanswered till press time.
“This transaction has not been done as a consortium, but was only between Bank of Baroda and DHFL,” the second person said.
News agency PTI reported on Friday that lenders would take a call on their exposure to the stressed NBFC sector in the light of the Reserve Bank of India’s June 07 circular, which laid down guidelines for resolution of bad loans. “Resolution of any stressed assets either of NBFC or any other sector will be as per the June 07 guidelines of the RBI,” the report cited Kumar as saying.
On June 04, DHFL delayed interest payment on non-convertible debentures worth Rs 850 crore, following which its credit rating was downgraded to default by rating agencies Crisil and Icra. DHFL subsequently was able to make the interest payment within a seven-day grace period given by the bondholders.
On June 25, DHFL said in a regulatory filing that it was yet to repay Rs 225 crore of the total Rs 375 crore worth of commercial paper to 12 investors. Since September, DHFL has met liability obligations of over Rs 41,000 crore, it said in the same filing.
Mint reported on June 20 that DHFL sold Rs 2,000 crore worth of its loan portfolio to offshore investors in a transaction led by SC Lowy, a banking group based in Hong Kong, citing two people aware of the development.
Since December, it has also sold stakes in several of its strategic assets, including affordable housing arm Aadhar Housing Finance Ltd, educational loan business Avanse and DHFL Pramerica Asset Managers. In January, it sold Rs 1,375 crore of wholesale loans to foreign alternative investment management fund Oaktree Capital, which buys distressed loan portfolios at a discount.
As of March 31, DHFL’s promoters include Wadhawan Global Capital Ltd (37.3 percent), Aruna Rajeshkumar Wadhawan (0.76 percent), Dheeraj Rajeshkumar Wadhawan (0.57 percent) and Kapilkumar Wadhawan (0.57 percent).