Ability of DHFL to be a going concern will depend on resolution, say auditors

Troubled Dewan Housing Finance Corporation Ltd posted a net profit of ₹70.1 crore in the quarter ended June 30, 2020 but its auditors once again flagged that its ability to remain a “going concern” will depend on its resolution process.

“The company has accumulated losses exceeding the share capital and reserves and its net worth has been fully eroded; and it is now under Corporate Insolvency Resolution Process (CIRP),” the auditors KK Mankeshwar and Co noted in their comments on the first quarter results of the housing finance company.

DHFL became the first financial sector company to be taken into the corporate insolvency process in November last year. The Covid-19 pandemic and lockdown have disrupted the process to some extent and the deadline for the submission of bids has been postponed to September 16 now.

A transaction audit started under the resolution process is also underway and has not been completed due to the lockdown.

DHFL registered a net loss of ₹206.43 crore in the first quarter a year ago.

About 28 per cent of its account holders have taken the moratorium on loans as on June 30. “The recovery from some of the accounts in moratorium is forthcoming with gradual implementation of Unlock and commencement of field visits,” the lender said adding that it is hopeful that the recovery will further improve in the ongoing second quarter.

DHFL’s administrator R Subramaniakumar in the notes said ₹3,866.90 crore of investments and advances through unsecured Inter Corporate Deposit (ICD) including interest receivable are outstanding as on June 30, 2020.

“The recoverability or otherwise of the remaining amount is yet to be ascertained, and hence the appropriate provision amounted to ₹2,275.47 crore has been made as a prudent measure,” the notes said.

He also noted that the results have been drawn on the basis of “going concern”.

DHFL’s total wholesale loan portfolio including interest receivable amounted to ₹50,804.62 crore has been ‘fair valued’ as on June 30, 2020 at ₹30,107.27 crore, with the resulting fair value loss of ₹20,697.35 crore.

Of this amount, fair value loss aggregating ₹18,853.13 crore has been accounted up to March 31, 2020 and balance loss of ₹1,844.22 crore has been charged to the Statement of Profit and Loss for the first quarter.