Monday, February 6, 2023
HomeEconomyWhy bankrupt DHFL's ordinary FD holders will lose more money than banks...

Why bankrupt DHFL’s ordinary FD holders will lose more money than banks that supported it

DHFL’s committee of creditors has approved Piramal Capital’s offer of around Rs 37,000 crore for the company, which has a debt of nearly Rs 85,000 crore.

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Mumbai: In the six decades since the liquidation of the Palai Central Bank, no scheduled commercial bank has been allowed to fail. And not a single depositor of commercial banks has lost money. But now, possibly for the first time, depositors of beleaguered non-banking financial company (NBFC) Dewan Housing Finance Corporation Ltd (DHFL) are set to lose money.

On 17 January, the DHFL’s committee of creditors (CoC) — which are bankers — approved Piramal Capital and Housing Finance Ltd’s offer of around Rs 37,000 crore for the company, which has a debt of around Rs 85,000 crore.

The move came after the Reserve Bank of India (RBI) superseded the board of the mortgage lender in 2019, following concerns over governance, and initiated resolution under the bankruptcy laws.

The CoC plan will mean all the creditors will have to take a haircut, since Piramal’s offer covers only a part of the debt. But, according to the approved plan, it is the depositors who will take the maximum haircut — they make up for admitted claim of Rs 5,375 crore, of which only Rs 1,243 crore will be paid (23.1 per cent).

This is because the fixed deposit holders or the investors of non-convertible debentures (NCDs) are not secured creditors. The commercial banks are.

When a bank extended a loan to DHFL, the latter’s assets, financial or physical, were kept as collateral with the banks. As a result, the bank loans to DHFL are secured. This is in contrast with public deposits as the public or any such institution gives the money to a bank or an NBFC without asking for collateral.

According to the Insolvency and Bankruptcy Code (IBC), secured creditors are the highest priority to recover their dues. In the liquidation hierarchy, depositors stand low since they are unsecured creditors. So proportionately, banks will recover more than any depositor.

Also read: DHFL’s bankruptcy saga shows India will struggle to fix financial system after Covid

FD holders reject plan

DHFL has about 77,000 retail fixed deposit holders, apart from 3,500 institutional fixed depositors. According to the resolution plan, FD holders of up to Rs 2 lakh will get their entire money back. However, above Rs 2 lakh, only 25 per cent of the money due will be paid.

“We are now 400 plus petitioners who are FD holders. FD holders have rejected the resolution plan. Because FD holders up to Rs 2 lakh was getting paid 100 per cent, beyond Rs 2 lakh they were only getting 25 per cent. So we rejected the resolution plan,” Vinay Kumar Mittal, who is a lead petitioner on behalf of the FD holders, told ThePrint.

Mittal says, there are about 50,000 FD holders whose deposits are up to Rs 2 lakh. The amount involved for the remaining 27,000 FD holders is around Rs 1,400 crore. “Our demand is very clear. You pay retail FD holders 100 per cent as per the law, including whatever interest is due,” Mittal said.

“We are going to file another petition to an appropriate authority seeking action against National Housing Bank, RBI and DHFL for closing their eyes willfully and deliberately when the scam was going on,” he said.

While the committee of creditors has approved the resolution plan, the case is far from over. According to analysts, there are legal risks still.

“The biggest risk, in our opinion, is legal risk. DHFL’s resolution process has been ongoing for over a year, and the bidders have faced many hurdles in the process. Legal action may be taken on the verdict of the Committee of Creditors against this decision,” broking firm Motilal Oswal said in a note to its clients.

Also read: Improve skills, take unpaid internships — experts’ advice on surviving slow jobs market

Contrast with bank deposits

DHFL was accepting public deposits with permission from the central bank. Unlike banks, NBFCs like DHFL need RBI’s prior permission to accept public deposits. But NBFCs are only allowed to accept term deposits or fixed deposits, unlike banks, and not demand deposits like savings account deposits.

Deposits with banks are considered safer than with NBFCs as bank deposits up to Rs 5 lakh are insured. This means if a bank goes belly up, depositors will get back their money up to Rs 5 lakh. This insurance cover is not available to NBFC depositors.

Moreover, as noted earlier, commercial banks have been allowed to fail in nearly 60 years. Be it crisis-hit Global Trust Bank, Yes Bank or Lakshmi Vilas Bank, the government and the RBI have ensured that no depositors of commercial banks lose their savings.

The bankruptcy code is not applicable to commercial banks. When a bank is in trouble, the authorities swing into action to save it.

However, despite this safety in commercial banks, depositors put their savings in NBFCs as they offer higher interest rates as compared to bank deposits. The same holds true for NCD holders. NCDs offer much higher returns than bank deposits — but with the caveat of higher risks.

Also read: Why Edelweiss fund is still bullish on India’s runaway stock market


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  1. My 82 year old father invested money received from insurance, on death of his son, my brother. That was all he had. The dignity of living independently in his retired life has been snatched away. The pain we go through is indescribable. This is not justice. Taxpayers should be allowed to pay zero tax until their money is recovered. Will concerned government bodies /authorities ensure justice prevails? My faith is running out.

  2. My FD matured Nov 2019, I’m a senior citizens my husband a year and suffered from Parkinson Disease, I do not enough savings as spent on husband’s treatment for medical.
    With no income it’s difficult to survive. For 2 years now I have not got a single penny from DHFL..when I applied their sales executive said they are CRISIL 3 star Rated this n that.
    Kapil Whadwan n family are India biggest fraudster and thieves.
    May rot and die in hell. Kapil Whadwan was born a shameless dog.
    DHFL is this country biggest corporate scam n Govt is blind not taking any action, even Nirmala Tai is useless Finance Minister..

  3. We invested in dhfl with plan to repay dhfl loan after some time. But we are not getting our fd amount but we have to pay loan emi.

  4. We are senior citizens eagerly waiting for refund of our fixes deposit,be kind enough to repay our hard earned money

  5. If any group of FD holder is formed or will be formed kindly also let me know the plan/proposal to fight in this matter with concerned higher authorities at my email. I shall also join the group.

  6. My pension money will be gone. Please save us I am already hospitalised twice due to this shock.

  7. Since I and my husband leaving alone. Sons are not taken any responsibilities. From our hard earning I insisted my whole amount into dhfl FD so that I can complete social formalities of marriage of children of two daughters. We are very much worried having tension to know the news of non payment of complete amount of our FD. In such situation we have only hope from Respected Midi Ji to intervene into the matter which involve thousands of innocent people’s of the country since without Govt. Knowledge no one can such fraud. Kindly help us. Aab aap he hamere Karandhar hay.

  8. Put in jail permanant full life Dewan other will get lesson so nobody will do again sebi also check before giving permission any company NCD

  9. Sir why it’s happening with us .. My dad is no more with us … and my mom was saved all the money for my marriage… And after knowing this news … she is suffering from tension and headaches…. we dnt have any source other source of money. .. all we have is around 5 lakh fixed deposit in dhfl … there is only hope of dis money … plzzz do sumthng for people like us … what can a lady do if she loose or her saving … N lost his husband in past … plzzz plzzz … do sumthng for us …

  10. This is unfair action with the FD holders who invested their hard earned money in a AAA rating company .
    In this case Rating agencies and auditing agencies should be penalized for their non performance of duties.
    FD holders should be given their complete money back…….

  11. Most of investors in DHFL debentutes and FDs invested in DHFL as unlike other companies, DHFL was under the supervision of not one but two regulators – RBI and NHB.

    As per Grant Thornton the diversion of funds has been going on from 2007 – it is inconceivable that any regulator is so incompetent that they did not detect this for 10+ years.

    What more the CorbaPost report came out in Jan 19 – it is surprising that did they not act promptly on this report and sadly let the money be siphoned out.

    NCLT should hence order these regulators to compensate thr FD holders in full for their losses

  12. Why is Modi govt silent on the issue.modi and company knows very well what is going on.why is govt not framing strongest laws to prevent looting of common people hard earned money.

    Please Include us also as CLAIMAINTS, whoever initiates the battle, the War, the Dharmayudhha.

  14. Most of are sr.citzens and have invested in DHFL looking at AAA rating and past performane. We are assued that NCDs are secured. Why now this stand. We must get back our full invested amount along with intrest till date.

  15. At this juncture we fd holders who invested our hard earned money in this dhfl should be United and fight to recover our hard earned money. So we will form as one group and face this issue legally and also take efforts to bring it to the notice of the finance minister and also to the public through media. So it is my earnest request that we all should join together. For this somebody (a familiar person among the fd holders) should take initiation to form as one group and fight for our right.

  16. Do not invest in Ncd all AAA rating giving and sebi allowed If this way people will lose money no body will belive and invest

  17. Not all NCD holders are unsecured. NCD has both secured and unsecured type and even DHFL NCDs are in these two types so please correct it

  18. Not all NCD holders are unsecured. NCD has both secured and unsecured type and even DHFL NCDs are in these two types. It is wrong to categorise them unsecured as a whole

  19. dear sir….please note that most FD holder are senior citizens who have placed FDs in a three decade company , biggest NBFC in India, with AAA ratings and into a safe business called home loans…..Also they were paying just one percent more than bank FDs and never looked risky or speculative……Almost all financial advisors like Bajaj were assuring FD seekers that there money is very safe in DHFL, Mahindra…..
    We were not greedy but led to believe that this was safe as it could get……
    Also we never doubted that laws will be inconsiderate to FD holders ….as you said in your article …banking had never let down FD holders…

    How can retail FD holders be clubbed with institutions…..Many of us are sunk if sensitivity to age and being retail are not considered…Atma Nirbhar is a core need for senior citizens……this is our sunset year savings…..please escalate and help

  20. Sir i have secured ncd in dhfl why are you saying ncd are unsecured dhfl gives us the letter its is written that they are secured

    Fd are not secured but ncd are secured but we are also getting haircut which very very wrong no body is talking about secured ncd holder

  21. Why will India struggle to fix the financial system after covid just because of the DHFL bankruptcy saga… one rotten family looted its creditors does not mean it’s the end of the road…
    Seems author has his own agenda….

  22. Why the hard earned money of common man be sacrificed and interest of commercial banks will be taken care. Who is responsible for this? It the regulator who has given permission to NBFC to garner deposits from common man. So, regulators must fix the problem of depositors who are ordinary citizens of this country.

  23. In full compliance with GOI rules, our charitable trust invested the GIRLS HOME CORPUS FUND in DHFL, that enjoyed FULL AAA GOVT RATING. But the GOI withdrew their rating and support AFTER the RBI “pulled the rug” on DHFL.
    Our trust in GOI has met with betrayal. Our girls deserve better protection

  24. Edit: it should be ‘Moreover, as noted earlier, commercial banks have NEVER been allowed to fail in nearly 60 years.’ in third to last paragraph.

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