Ajay Piramal’s Piramal Group has received the go-ahead from the Reserve Bank of India (RBI) to buy troubled mortgage lender Dewan Housing Finance (DHFL).
The apex bank approved Piramal Capital and Housing Finance (PCHFL) under the “fit and proper” criteria that was needed for the deal. The transaction now is subject to the final approval from the National Company Law Tribunal (NCLT).
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A NBFC, PCHFL does not accept deposits unlike DHFL that accepts deposits.
PCHFL outbid American asset manager Oaktree for the deal, with the former’s bid securing 94% votes from lenders and Oaktree’s bid securing 45%.
Oaktree’s bid for the debt-laden firm was INR384bn while Piramal’s was INR372.5bn. However, it was in Piramal’s favour as the firm offered a higher upfront cash payment.
The deal aligns with Piramal Group’s loan book diversification plan. Plans are on to merge DHFL with Piramal’s financial services unit, stated a Piramal group official.
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By GlobalDataThe official further said that Piramal could absorb all staff of DHFL and also expand headcount to drive growth.
Confirming the development, a Piramal Group spokesperson stated: “We understand that the RBI has approved the DHFL resolution plan from Piramal Capital and Housing Finance, submitted by the CoC (Committee of Creditors).”
What led to the crisis
In 2018, Infrastructure Leasing and Financial Services (IL&FS) defaulted on its debt obligations and collapsed, triggering a liquidity crunch.
The failure of IL&FS caused turbulence across the country’s financial services industry and banks started becoming wary of lending money to such institutions.
The shares of DHFL also took a hit after the collapse of IL&FS. The company came under stress and had to dispose several of its businesses to pay back debt.
Things worsened with the arrest of DHFL promoters Wadhawan brothers for financial irregularities.
DHFL owes approximately INR910bn to its lenders, with State Bank of India being its biggest creditor. Among other creditors are Bank of India, Canara Bank, NHB, Union Bank of India, Syndicate Bank, and Bank of Baroda.
