DHFL proposes ‘origination-and-securitisation’ deal to stay afloat

Cash-strapped Dewan Housing Finance Corporation (DHFL), as part of its proposed resolution plan (RP), may seek ₹1,200-1,500 crore a month to resume its operations by assuring lenders that it will originate home loans and securitise the same back with them at the end of 12 months.

This originate-and-securitise operation is aimed at encouraging lenders to start financing the company.

Further, DHFL is likely to seek lenders’ buy-in to use equated monthly instalment (EMI) collections of ₹2,300 crore for putting its business back on the rails.

According to the RP, which is in the works, if banks lend ₹1,200-1,500 crore a month to help re-start business, DHFL will originate an equivalent amount of home loans, and at the end of 12 months, securitise these loans back with the banks.

Securitisation is a process whereby the underlying pool of assets (housing loans, auto loans, commercial vehicle loans, tractor loans, etc) of a lender are packaged and sold as financial instruments to investors. Collections from the underlying assets are passed on to the investors as payouts.

“On the one hand, DHFL will securitise almost 90 per cent of its incremental home loans with banks that have lent to it; on the other, the latter will tick mark the box relating to priority sector lending. At the end of 12 months, a review can be conducted on the originate-and-securitise operation. If lenders are satisfied, they can extend the tenure of DHFL’s loans to three to four years,” said a source clued in to the developments.

Relaxed norms

In order to encourage non-banking finance companies to securitise/assign their eligible assets, the Reserve Bank of India, in November 2018, had relaxed the Minimum Holding Period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above five years, to receipt of repayment of six-monthly instalments (from 12) or two quarterly instalments (from four).

The aforesaid relaxation, which has been extended till December-end 2019, was subject to the prudential requirement that the Minimum Retention Requirement (MRR) for such securitisation/assignment transactions should be 20 per cent of the book value of the loans being securitised/20 per cent of the cash flows from the assets assigned.

Loans of up to ₹35 lakh to individuals in metropolitan centres and up to ₹25 lakh in other centres for purchase/construction of a dwelling unit per family, are eligible to be considered as priority sector lending, provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed ₹45 lakh and ₹30 lakh, respectively.

Leveraging EMI collections

Besides the originate-and-securitise operation, DHFL may seek lenders’ approval to use ₹2,300 crore worth of EMI collections to disburse home loans. Under this arrangement, while DHFL will continue to service the interest part, it will seek moratorium on the principal payment as part of the debt recast.

The source quoted above said once the debt is recast, it will mean that there is surety of business. So, strategic investor and capital infusion will follow.

As of March-end 2019, resources raised by DHFL via debt securities stood at ₹45,379 crore (₹35,814 crore as of March-end 2018), borrowings (other than debt securities) stood at ₹39,551 crore (₹44,964 crore), and deposits stood at ₹6,588 crore (₹9,652 crore), according to the company’s financial liabilities position.

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