DHFL  fraud through 2,60,000 fake accounts

C.P.Krishnan (சி.பி.கிருஷ்ணன்)

Dewan Housing and Finance Ltd (DHFL) is a classic example where top level fraud has caused serious loss to the extent of thousands of crores of rupees  to the financial institutions including Public Sector Banks and ruined thousands of families of the depositors.  DHFL was founded in 1984 and its main business was to extend housing loans to the lower and middle income group of people. It is a Non-Banking Finance Company (NBFC) with a RBI licence to take deposits from the general public.

Over a period, the DHFL has started indulging in fraudulent activities. The promoter brothers of this company Kapil Wadhwan and Dheeraj Wadhwan have allegedly involved in a huge scam to the extent of several thousands of crores of rupees. The ED (Enforcement Directorate) and the CBI (Central Bureau of Investigation) filed charge-sheets and the promoters have been arrested.

2,60,000 fake accounts

The gist of the findings are: “During the period of 13 years from 2007 to 2019, DHFL has opened 2,60,000 (Two lakhs sixty thousand) fictitious accounts through its non-existent Bandra Branch. There is no physical branch in Bandra.  Only for the purpose of its loan sanction such a branch existed.  There is no real customer who has borrowed money for house building. The data of those who really availed housing loan and later closed their accounts were used for creating fake accounts. Not one or two, 2,60,000 such fake accounts were opened. E mails used to be sent for a loan proposal from the non-existent Bandra Branch for these fake accounts directly to CMD; the loan would be sanctioned instantly without following any procedure and the money would be disbursed from the accounts of DHFL maintained in Axis Bank and Union Bank of India. The money disbursed in turn would be shifted to some shell companies promoted by Wadhwan Brothers, swindled and a major portion of the money was converted as asset in foreign countries. The fraudulent amount is estimated to be Rs.17394 crores”.

Depositors and PSBs lost money

DHFL owes to the extent of Rs.83,873 crores to the mutual funds, retail bond holders and financial institutions including SBI and Bank of Baroda. Out of these, the public deposit would be around Rs.9800 crores when DHFL stopped its operations. These hapless depositors’ money got stuck up for more than two years. Finally they were paid only 23% of their deposit value without interest after Parimal group took over DHFL for a sum of Rs.37250 crores through a resolution approved by National Company Law Tribunal (NCLT) under the Act of Insolvency and Bankruptcy Code (IBC). Only based on the licence given by RBI, people deposited their money in DHFL. But there is no DICGC (Deposit Insurance Credit Guarantee Corporation) coverage for deposit in any NBFC including DHFL which general public are not aware. It is not known to the public what steps were taken by the investigating agencies to bring back the money swindled by Wadhwan brothers. Instead of recovering the money from them and making good the loss, IBC Act was utilized to sell off DHFL to Parimal Group for part value. In that process the depositors as well as Public Sector Banks stood to lose heavily.

DHFL received subsidy under PMAY scheme

The highlight is that 88651 housing loan accounts of these 2,60,000 fictitious accounts were converted as housing loans under the Pradhan Mantri Awas Yojana, a scheme announced by the Union Government in 2015 and interest subsidy of Rs.1887.20 crores was claimed. As the first installment, DHFL received Rs.539.40 crores. When everything was fabricated, how the first installment was sanctioned by the Union Government without any verification? It needs a thorough probe. A fresh charge-sheet has been filed against Wadhwan brothers by the CBI in this regard.  But it is not known what action was initiated against the Government officials who sanctioned subsidy of Rs.539.40 crores. Thus approximately Rs.50000 crores of the depositors’ money and the institutional money which in turn is the people’s money have been fraudulently siphoned off by the promoters of DHFL. The system and the people at the helm of the affairs of the system freely allow this to happen.

Already the ED filed a charge-sheet against Wadhwan brothers in the case of illegal gratification of Rs.600 crores to Rana Kapoor and his family members for getting an investment of Rs.3700 crores to DHFL from Yes Bank.

Reserve Bank of India, as a regulator, has thoroughly failed to check the fraudulent activities of this company. When the investigative journalism like Cobra Post pointed out as early as January 2019 about the scam, it is either ignored or discredited. When this is the case of private banks and private NBFCs, RBI wants to convert large NBFCs as universal banks.  The Union Government is proposing to privatize two Public Sector Banks, to start with. Are we going to permit this kind of open loot and plunder of people’s money?