Due to governance concerns and defaults on various debt instruments, the Reserve Bank of India (RBI) on Wednesday superseded the board of the debt-ridden Dewan Housing Finance Limited (DHFL). In the last union budget, the government had amended the RBI Act to empower the regulator to appoint an administrator.

The central bank has appointed R Subramaniakumar, former managing director and chief executive officer of Indian Overseas Bank as the new administrator of the DHFL with all the powers of the board.

"The Reserve Bank has today superseded the board of DHFL owing to governance concerns and defaults by DHFL in meeting various payment obligations," RBI said in a statement.

Read | Latha Venkatesh explains: If DHFL heads to IBC – What are the odds of a successful resolution?

It further said shortly initiate the process of resolution of the company under the bankruptcy code, 2019 and would also apply to the National Company Law Tribunal (NCLT) for appointing the administrator as the resolution professional.

DHFL owes over Rs 38,000 crore to banks alone and has over Rs 85,000 crore liabilities in total which it owes to banks, mutual funds, pension funds, National Housing Bank, depositors and others.

In a statement to stock exchanges, DHFL said a statutory inspection of the company conducted by the National Housing Bank (NHB) with reference to its position as on March 31, 2018, revealed serious deterioration in its financial position.

"Taking into account the defaults committed by DHFL in meeting various repayment obligations, and the serious concerns emanating from the Inspection conducted by NHB, the Reserve Bank of India, in exercise of the powers conferred by Section 45 IE of the Reserve Bank of India Act, 1934, hereby supersedes the Board of Directors of DHFL and appoints Shri R. Subramaniakumar as its Administrator with immediate effect," DHFL said in a statement.

DHFL lenders have finalised a resolution plan to acquire a 51 percent in the company by converting a part of their debt into equity. However, the plan has not been implemented yet due to several regulatory and legal issues involving the company. Meanwhile, Sebi chairman Ajay Tyagi meeting said mutual funds would join the DHFL bankruptcy process.

A recent notification by the Ministry of Corporate Affairs stated that non-banking financial companies having assets worth at least Rs 500 crore will be covered under the Insolvency and Bankruptcy Code (IBC).

Anuj Puri, chairman of ANAROCK Property Consultants, believes "this move will provide a speedy resolution mechanism for the sector".

"Until now, the NBFC sector that is classified as a financial service provider (FSP) did not come under the purview of IBC. Looking at the current scenario where many NBFCs with heavy exposure to wholesale lending are facing solvency issues and struggling to avert default, this move will provide a speedy resolution mechanism for the sector," he said.

First Published:Nov 20, 2019 6:24 PM IST