Rs 34,000 crore DHFL scam is India's biggest bank loan fraud: What you need to know
Recently, the Union Bank of India lodged a complaint and accused DHFL of:
- Taking loans worth Rs 42,871 crore from a mix of 17 banks between 2010 and 2018.
- Dishonestly defaulting on repayments from 2019.
- Siphoning off and misappropriation of funds by falsifying the books of DHFL, leading to a loss of Rs 34,615 crore to the 17 banks.
In response, the CBI registered a fresh case against Kapil and Dheeraj Wadhawan of (DHFL) and raided their 12 premises across Mumbai.
CBI books DHFL and its Directors Kapil Wadhawan, Dheeraj Wadhawan and others for allegedly defrauding 17 banks of 34,615 crore.
— Jayant Deshmukh - जयंत देशमुख (@jayantdeshm) June 24, 2022
The biggest bank fraud case ever registered by CBI, earlier ABG Shipyard was booked for defrauding 23,000 crore. pic.twitter.com/9nMtRX0Qpd
But what is this case all about? Here's the story:
1. THE BASICS
The Wadhawan family runs two primary businesses that work well together in today's day and age:
1. Dewan Housing Finance Limited (DHFL- Real estate business)2. Housing Development and Infrastructure Ltd (HDIL- Housing finance business)
As real estate customers often need housing finance, let's just say, both businesses supported each other and did really well. DHFL was the largest private player in this industry and India's fourth-largest mortgage financier, so that should give you a hint.
This business is run by two brothers and their kids:1. Rajesh Wadhawan and his kids Kapil and Dheeraj (or Baba) Dewan2. Rakesh Wadhawan and kid Sarang (or Sunny) Dewan
2. WHAT DID THEY EXACTLY DO?
The bank's ideal business process was to borrow money from banks, mutual funds, and insurance companies, and lend this money to the public for financing their homes. But instead, they transferred this money to their own dummy paper entities, created dummy home schemes and thousands of fake home loan buyers who existed only on paper, thereby using the money for their personal needs.
3. HOW WAS THIS SCAM UNEARTHED?
DHFL's troubles began when an investigative platform Cobrapost did a sting operation in January 2019 and alleged that the promoters of DHFL had siphoned off public money. As per Cobrapost, DHFL had borrowed loans from 17 different banks between 2010 and 2018 with the so-called intention of loaning them to their customers who wanted to finance their homes. But instead of using the loans for their business, these companies slyly transferred this money out to paper entities that were owned by the Wadhawans and controlled by people related to them.
DHFL's response to this operation was a denial statement that said that this was done with ''mala fide intent to cause damage to the goodwill and reputation of DHFL''. Immediately, DHFL's share prices went down. Between June - July 2019, DHFL committed its first default and stopped interest payments on bonds and loan obligations worth Rs 960 crores. Since mutual fund investors were the largest buyers of DHFL's debt securities, this led credit rating agencies to downgrade DHFL's securities.
The lending banks who were obviously distressed about the largest probable loss of money ever lent appointed KPMG to conduct a 'special review audit' of DHFL from April 1, 2015 to December 31, 2018.
4. KPMG'S STARTLING FORENSIC AUDIT REVELATIONS
Here's what a forensic audit by KPMG found:
- There was a diversion of 'large amounts'' of funds in the guise of ''loans and advances'' to related and interconnected entities and individuals of DHFL and its directors.
- Out of the Rs 27,000 crore that was lent by banks to DHFL for loaning to its customers, KPMG did a sample study of Rs 15,000 crore. They found that of this Rs 15,000 crore, 67% (ie Rs 10,050 crore) were invested in mutual funds and not given to customers.
- DHFL had loaned about Rs 14,000 crore to about 25 of their group companies. The interesting part is that these 25 companies only make about Rs 1 lakh in profits (you guessed it right- these are the fake paper companies).
- About 66 entities related to DHFL promoters were disbursed Rs 29,100 crore as loans and Rs 29,849 crore was yet to be repaid.
5. THE CURIOUS CASE OF HIDDEN ''BANDRA BOOKS''
Another startling discovery was made when KPMG reported that DHFL had disbursed Rs 14,000 crore as project finance loans but had shown these as ''retail loans'' in their books. This means that DHFL had created fake entities and fake individual home loan buyers and had faked their documentation. To hide the actual use of Rs 14,000 crore, DHFL had created 1,81,664 false and non-existent retail loans which were also called 'Bandra Books'.
These fake accounts (and loans) were maintained in a separate database (Foxpro software) and were subsequently merged with OLPL (Other Large Project Loans). ''Other Large Project Loans'' were basically those projects where DHFL had siphoned off money but showed them as ''loans that were disbursed to big entities (ie fake)''. These loans were given without any due diligence and without any security, which is quite unusual. Rs 14,000 crore was split as Rs 11,000 crore towards large fake entities while the balance towards fake retail loan buyers. These ''Bandra Books'' were maintained by a senior official at DHFL who was assisted by two colleagues.
Looks like DHFL has stayed true to its logo of ''Changing rules and changing lives'' - but only for the worse.