DHFL banned by RBI from taking deposits under Piramal management.

The Reserve Bank of India has removed Dewan Home Finance's (DHFL) deposit-taking status and categorised it as a non-deposit taking housing finance business, prior to approving the Piramal group's request to take over the business towards the end of the resolution process.

The information was revealed in a June 7th NCLT Mumbai ruling that accepted Piramal Capital & Housing Finance's Rs 35,250-crore offer for the once-second-largest mortgage lender, inflicting a 65 percent haircut on creditors and only Rs 1 to NCD holders to whom it owes more than Rs 45,000 crore.

The NCLT judgement passed by HP Chaturvedi and Ravikumar Duraisamy, clearly states that DHFL is no longer a deposit-taking NBFC, but rather a non-deposit-taking one.

The NClt order read as, "Pursuant to the FSP Rules, the RBI communicated its 'no objection' on February 16, 2021 for change in control/ownership/management in DHFL in terms of Rule 5(d)(iii) of the FSP Rules and also in terms of para 3 of NHB circular – housing finance companies -- approval of acquisition or transfer of control Directions, 2016, subject to (inter alia) the condition that the deposit-taking status of DHFL will be revoked and merged entity of DHFL and Piramal Capital shall function as a non-deposit taking housing finance company."

The amendments were implemented in February 2021, when the RBI granted R Subramaniakumar, the DHFL administrator, a non-objection to his January 25th, 2021 application, referencing Rule 5 of the RBI's FSP (financial services providers) Rules.

On November 20th, 2019, the RBI replaced the DHFL board and appointed Subramaniakumar as its administrator, making DHFL the first financial services firm to be submitted to the NCLT for bankruptcy.

After its promoters reportedly stole public funds and defaulted on debt repayments of over 95,000 crore to 21 banks and tens of thousands of depositors, the firm went bankrupt.

On January 15th, 2021, the Piramal group's 35,250 crore offer was accepted by the committee of creditors.

To allow the RBI to refer DHFL to the NCLT under Section 45-IE(2) of the RBI Act, which deals with governance problems and defaults, the government had to alter the RBI Act and announce a section of the bankruptcy code.