SUBJECT - CORPORATE FINANCE & TAXATION

Prof. – BODA

FINANCIAL SCAM OF 31000

Crores
DHFL Home Loans: 'Ghar Jaisa
Loan' from real dreams to reality
 INDEX
 INTRODUCTION
 NATURE OF SCAM
 SCAM IN DETAIL
 ANALYSIS OF FINANCIAL STATEMENT & LINKING
WITH STOCK PRICES
 EFFECT ON THE COMPANY AND INDUSTRY
 EFFECT ON COUNTRY ECONOMY
 REMEDIAL MEASURE
 CONCLUSION
 INTRODUCTION

Dewan Housing Finance Corporation Ltd. (DHFL) is a deposit-taking housing finance company,

headquartered in Mumbai with branches in major cities across India. DHFL was established to enable
access to economical housing finance to the lower and middle income groups in semi-urban and rural
parts of India. DHFL is the second housing finance company to be established in the country.The
company also leases commercial and residential premises. DHFL is among the 50 biggest financial
companies in India.

DHFL was established and incorporated by Rajesh Kumar

Wadhawan on 11 April 1984. The name of the company was
changed to Dewan Housing Development Finance Ltd. and later
to Dewan Housing Finance Corporation.
In 2010, DHFL acquired Deutsche Postbank Home Finance unit
for ₹1079 crores. On 18 December 2013, DHFL acquired 74%
stake DHLF Pramerica Life Insurance Company Ltd.
 NATURE OF SCAM
In the recent past, the economy of India has been hit
by one corporate marauder after another. It is
surprising how the people who are calling the shots in
an economy on any given day suddenly disappear from
the country and turn rogue. However, this same story
has played out in India over and over again. Billionaire
entrepreneurs like Nirav Modi, Mehul Choksi, Vijay
Mallya and Lalit Modi have all defrauded the people of
India. These are just a few hi-flying names. There are
many promoters of small and mid-cap companies that
are known to be involved in scams.
The Indian investors, as well as the general public, was
hoping that the scams had ended and now business
will continue as usual. However, it seems like they are
in for a rude shock. A little-known media company
called “Cobrapost” has made some surprising
revelations against Dewan Housing Finance Ltd (DHFL)
which is amongst the renowned Non-Banking Financial
Corporation (NBFCs) in the country.
On 20th November 2019, the Reserve
Bank of India removed the board of
directors of the company citing
corporate governance failure and the
company's defaulted payment
obligations.
On 29 January 2019, Cobrapost, an Indian
investigative journalist group, published an
exposé of DHFL for using various shell
corporations to siphon more than 31,000 crores
of public money for the personal gains of the
DHFL's primary stakeholders: Kapil Wadhawan,
Aruna Wadhawan and Dheeraj Wadhawan. In
the same article, Cobrapost also raised
allegations of political donations worth crores of
rupees, in violation of Section 182 of Companies
Act, 2013 for political donations. 

SCAM IN DETAIL
 Loans to Shell Companies
 Round Tripping
 Purchasing Assets
Purchasing Assets: Lastly, the money acquired by round
tripping was used by DHFL in order to purchase assets in
other countries. It is a known fact that DHFL has invested
money in startup companies in the United Kingdom. It is also
known that DHFL has purchased a cricket team in the Sri
Lankan Premier League. It is alleged that the proceeds of
these loans were used to make these transactions.
Cobrapost also alleges that other personal assets have also
been created in countries like Mauritius and Dubai by the
owners of DHFL. Once again, this seems like a scam
because all the assets have been created in other
jurisdictions. Hence the Indian government or the tax
authority will not be able to acquire the same.
Cobrapost has alleged that DHFL has made dubious loans to shell
companies. Shell companies are pass-through entities. This means
that they are not the final destination of the money. Instead, they
are just a stop on the complex route which is generally created to
confuse tax and other regulatory authorities. Cobrapost claims to
have identified 34 such corporations. These corporations have
indirect links to the promoters of the DHFL group, and reports
indicate that DHFL has lent out close to $1.5 billion in unsecured
loans to these companies.
. Cobrapost has alleged that a lot of these loans given to shell
companies have now become non-performing assets
(NPA’s)
Loaning public money without following the proper process is just
a part of the problem. The bigger problem is that the money
which was loaned out has later flown back into entities which
were owned by the DHFL group. In financial parlance, this is
known as round-tripping. Hence, in effect, DHFL gave an
unsecured loan to its promoters. The shell companies and other
transactions were just paraphernalia which was used to cover up
these blatantly illegal transactions. If Cobrapost is able to prove
round-tripping, the problems of DHFL will be magnified. Without
round-tripping DHFL is just guilty of negligence. With round-
tripping, DHFL has a malafide intent and therefore becomes guilty
of fraud.
https://www.managementstudyguide.com/what-is-the-dhfl-scam.htm
 ANALYSIS OF FINANCIAL STATEMENT & LINKING
WITH STOCK PRICES

Dewan Housing Finance Corporation Limited 26 I Annual

Report 2018-19 As on March 31, 2019, your Company has
invested ` 737.95 crore in bank fixed deposits and NHB bonds
and ` 697.47 crore in approved securities (book value-gross)
which includes both Government securities and Government
guaranteed bonds. Significant changes in key financial ratios
Particulars For the financial year 2018-19 For the financial year
2017-18 Interest Coverage ratio 0.88 1.22 Current ratio 0.97
1.03 Debt Equity ratio 11.57 9.93 Operating Profit margin
63.8% 86.7% Net Profit margin -8.0% 11.4% Return on Net
Worth -11.95% 14.20% The changes in the aforesaid ratios are
largely on account of the loss suffered by the Company during
the Financial Year 2018-19 and adverse business
circumstances as detailed in this Report.

https://www.moneycontrol.com/india/stockpricequote/finance-hous
ing/dewanhousingfinancecorporation/DHF#MshareElement
 ……..STOCK PRICES

Market Reaction
In the past one year, DHFL lost nearly 90% of its market
value from Rs 7,233 crore in November 2018 to Rs 731
crore in November 2019. Rs 10,000 invested in DHFL in
November 2018 is worth just Rs 1,010 in November 2019.

A draft forensic report by KPMG found that the lender had

disbursed loans and advances to inter-connected entities
which were likely linked to the promoters.

Lenders — State bank of India, Union Bank and Indusind Bank —

have red-flagged troubled mortgage lender Dewan Housing Finance
Corp (DHFL) as fraud account, sources familiar with the development
told FE ( Financial Express) Yes Bank had provided a loan of Rs 3,750
crore to DHFL and another loan of Rs 750 crore to RKW Developers, a firm
controlled by DHFL
https://economictimes.indiatimes.com/wealth/invest/which-stocks-fell-the-most-due-to-corporate-scandals-in-past
oneyear/articleshow/72082456.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://www.financialexpress.com/economy/fraud-fallout-sbi-two-more-lenders-red-flag-dhfl-accounts/1831049/
 EFFECT ON THE COMPANY

Cobrapost brought to light the Wadhawan family’s

involvement in the following: illegal insider trading,
violating takeover regulations of the Securities and
Exchange Board of India (SEBI), creating Rs 4,000 crore
worth of offshore assets that can be used to avoid taxes
legally or to launder money illegally, and buying a Sri
Lanka cricket team, Wayamba, by using siphoned loan
money. Cobrapost also identified three major companies
—Galaxy, Silicon, and Hemisphere—as having been
instrumental in carrying out this scam.

The Wadhawans have also been accused of other crimes

like misappropriating public money, violating legal
contracts and investors’ rights, defrauding investors,
misrepresenting financial documents, and more.

Rs 31500 Crs scam

https://scroll.in/article/926444/scroll-explainer-what-happen
ed-to-finance-firm-dhfl-and-what-that-means-for-the-indian- Share price 2018- Rs. 351.55 &
economy 2019 – Rs.16.58
 IMPACT on INDUSTRY - ECONOMY In 2018, another major NBFC, IL&FS, went bust, causing
alarm bells to ring throughout the industry. Banks became
much more careful about lending money to NBFCs. But
this led to a liquidity crunch, since there was limited
access to credit. Many NBFCs rely on short –term
borrowing to finance to finance long term lending,, which
puts them in a difficult spot when there is a liquidity
crunch.

NBFC crisis and its domino effect on
Indian economy
 NBFC crisis: Govt issues guidelines for Rs 1-
lakh crore partial guarantee scheme to revive
sector
 There is a decline in consumption which has led to a
decline in the GDP growth -India's GDP was around
0.4 percent
The Union Ministry of Finance has issued the scheme to
implement the Budget announcement to provide a one-
time partial credit guarantee worth Rs 1-lakh crore to
public sector banks for the purchase of pooled assets of
financially sound NBFCs and HFCs. The ministry said
this would provide much-needed liquidity to the NBFC
sector and, in turn, enable them to continue to play their
role in meeting the financing requirements of the
productive sectors of economy, including MSME, retail
and housing.

https://www.businesstoday.in/current/economy-politics/nbfc-crisis-govt-issues-guidelines-for-rs-1-lakh-crore-partial-gu
arantee-scheme-to-revive-sector/story/372493.html
 REMEDIAL MEASURE

 Finance minister Nirmala Sitharaman came up

 DHFL fixed deposit holders do
with a plan in the budget where banks could buy
not have the recourse to the debt assets of NBFCs up to Rs 1 lakh crore and that
resolution tribunal can apply the government would provide a cushion against
to the Supreme Court to be part losses of up to 10 per cent of assets bought. In
of the committee of creditors. the details governing the programme, it has
 Adani Group, KKR, Warburg & Oaktree bid to stipulated that the assets should at least have a
double-A rating.
buy DHFL. Banks have a total exposure of Rs
47,000 crore to DHFL, including non-
convertible debentures.

Impact on the average Indian

Cobrapost says that DHFL has misled the public and country’s financial institutions in a glaringly malicious
manner. “There is a massive deviation both from the industry practice on the lending policy of the company and
from good corporate governance norms of the company,” says the publication.

https://economictimes.indiatimes.com/markets/stocks/news/nbfc-rescue-plan-faces-many hurdles/articleshow/70763300.cms?utm_source=
contentofinterest&utm_medium=text&utm_campaign=cppst
The bottom line is that the allegations made against DHFL
are explosive. A scam of this magnitude will cause a lot of
damage to Indian investors. However, Cobrapost has
made the allegations with a lot of conviction and seemed
to have enough proof to back its claim. This revelation will
ensure that the regulatory agencies will have to PROJECT DONE BY
investigate the allegations thoroughly.
 Bhagyashri Malvankar
 Swati Sontakke
 Sharad Pillai
https://cobrapost.com/blog/biggest-financial-scam/1373  Sameer Katti
https://qrius.com/everything-you-need-to-know-about-the-r
s-31000-crore-dhfl-scam
/

- Full Understanding of DHFL SCAM