In NHB Refinancing Bid, DHFL May Seek Relief From Keeping 51% Of Its Assets As Home Loans

Cash-strapped Dewan Housing Finance Corporation Ltd (DHFL) may seek a temporary respite from the requirement of maintaining at least 51 per cent of its total tangible assets in the form of individual housing loans in a bid to get the National Housing Bank (NHB) to re-open its refinance tap.

The company’s individual housing loan portfolio has dipped below the above mentioned 51 per cent mark due to continuous sale of retail home loans to banks via securitisation ever since it started facing liquidity issues, beginning September 2018, following the IL&FS debt default imbroglio.

NHB, the regulator of housing finance companies (HFCs), stops refinancing once the crucial eligibility criteria of having minimum 51 per cent of total tangible assets by way of individual housing loans is breached.

A senior DHFL official said the company has done securitisation transactions involving home loans aggregating about ₹20,000 crore so far (beginning September 2018). Home loans now constitute about 45 per cent of the total loans, with the balance portfolio comprising loan against property, lease rental financing, purchase of commercial premises, and SME (small and medium enterprise) loans.

By buying DHFL’s home loan portfolio, banks are killing two birds with one stone — their home loan portfolio is expanding inorganically, and on the other hand they are getting the HFC to repay loans from the liquidity generated via the sale.

The official observed that given the extraordinary situation that DHFL is currently facing, if NHB can make an one-time exception allowing refinancing of incremental home loans, DHFL can re-start its lending business. The maximum quantum of refinance extended by NHB to HFCs is 50 per cent (of the individual housing loan portfolio of the primary lending institution).

The refinance is available for a period of not less than one year and not exceeding 15 years.

On June 25, DHFL informed the exchanges that it has met liability obligations of more than ₹41,000 crore without any recourse to fresh debt funding, a situation exacerbated by multiple rating downgrades.

The company added that it met all its financial obligations through a combination of internal accruals, sell-down of its loan assets and monetisation of non-core assets.

Meanwhile, lenders to DHFL are expected to sign an inter-creditor agreement (ICA) on July 5 to put together a resolution plan (RP) for the account. The consortium, comprising about 35 lenders, is moving proactively to tackle the account, which is showing signs of incipient stress, in line with the RBI’s circular dated June 7 on Prudential Framework for Resolution of Stressed Assets.

Under the framework, lenders can initiate the process of implementing a RP even before a default has occurred. Now, lenders will undertake a review of the DHFL account within 30 days of the reference date (June 29). During this period, lenders will decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc.

Lenders are stitching together an RP to protect their exposure of about ₹46,000 crore to DHFL. This is aimed at ensuring that there is no systemic impact of the recent credit rating downgrades and defaults, albeit temporary, on financial instruments.