Did DHFL perpetrate a gigantic Rs.34,500 Cr fraud?

Less than 6 months after the sale of Dewan Housing Finance Ltd (DHFL) to Piramal Enterprises was finally consummated, it has become the subject of one of the biggest frauds in the history of corporate India. The Central Bureau of Investigation (CBI) has booked DHFL, former CMD Kapil Wadhawan and director Dheeraj Wadhawan for a banking fraud worth Rs34,615 crore. In terms of size, magnitude, criticality and audacity, this would go down as one of the most momentous frauds in Indian corporate history. 

Immediately after the case was registered, the CBI team of over 50 officials spent better part of the day carrying out coordinated searches on 12 premises in Mumbai. All these premises belong to the Wadhawan family, either directly or in benami names. The CBI is looking for hands-on evidence to ratify their claims that a massive fraud of money laundering and concealment of information has been perpetrated.

Apart from Wadhawan family, CBI also raided Sudhakar Shetty of Amaryllis Realtors and 8 other builders.
The trigger for this CBI raid was a complaint filed by the Union Bank of India (UBI). Incidentally, Union Bank was the leader of the 17-member lending consortium which had extended credit facilities to the tune of Rs42,871 crore to Dewan Housing.

This pertained to the period between 2010 and 2018. Union Bank has alleged in its complaint that Kapil and Dheeraj Wadhawan criminally conspired with others to misrepresent and conceal critical facts. Also, their breach of trust cheated the consortium to the tune of Rs.34,614 crore.

This came out quite clearly in the forensic audit done on the books of Dewan Housing. According to the forensic auditors, the company had allegedly committed financial irregularities of a huge magnitude. It had diverted funds, fabricated books and also round tripped funds under fictitious names and entities in order to create assets for Kapil and Dheeraj Wadhawan. As of now, both the brothers are in judicial custody in connection with previous fraud cases pending against them. DHFL had a special RBI sponsored rescue.
 

Back in 2019, when DHFL first got into financial troubles due to the massive fraud, the forensic auditor had alleged siphoning out of funds of the banks into the personal accounts through a web of shell companies. At that time, the banks had also issued a Look-Out Circular against Kapil and Dheeraj Wadhawan to prevent them from leaving India. Apparently, DHFL had siphoned out money disguised as loans, which were later declared bad, but the funds had already been routed to the personal accounts of promoters.

As per the KPMG audit back then, a total of 66 fictitious entities bearing commonalities with DHFL promoters were given out loans to the tune of Rs.29,100 crore and a total of Rs.29,849 crore was outstanding at that point of time. Most of the funds has been apparently siphoned out and reinvested in land parcels and in properties. Other modus operandi used include diverting funds within a month of disbursal, rolling over NPA loans with classifying as NPAs, untraceable repayment of loans, moratoriums that cannot be explained etc.

There were other misdemeanours too. For example, DHFL and promoters disbursed Rs14,000 crore as Project Finance but recorded the same as retail loans in their books. As a result, DHFL created an inflated retail loans portfolio of 181,664 false and non-existent retail loan accounts worth a whopping Rs.14,095 crore. Many of the accounts were also used to siphon money out under the guise of securitization of receivables. While Wadhawan kept assuring lenders of comfortable liquidity, DHFL was almost bankrupt by mid-2019.

The last word may not have been said. For the RBI, this would be a good deterrent case to avoid such cases in future. It would like to send out a strong message.