DHFL Home Finance: A History and Analysis

Dewan Housing Finance Corporation Ltd (DHFL) was once a prominent housing finance company in India, catering primarily to low and middle-income segments in Tier II and Tier III cities. Founded in 1984 by Rajesh Wadhawan, DHFL aimed to provide affordable housing finance, particularly to individuals who lacked formal income documentation and access to traditional banking services. The company’s initial focus on this underserved demographic allowed it to rapidly expand its loan portfolio and establish a significant presence in smaller towns and cities across India.

DHFL’s business model revolved around extending loans against property, often to individuals employed in the informal sector. To reach this target audience, they relied heavily on a network of branch offices and direct sales agents operating in these smaller markets. Their marketing strategy emphasized ease of access and simplified documentation, attracting borrowers who were often excluded from conventional lending channels. For several years, this approach proved successful, contributing to DHFL’s strong growth and profitability.

However, DHFL’s aggressive expansion and lending practices masked underlying issues. The company increasingly relied on short-term commercial paper for funding, creating a significant asset-liability mismatch. Simultaneously, allegations of financial irregularities and mismanagement began to surface. Concerns were raised about the quality of DHFL’s loan book, with suspicions of evergreening and diversion of funds. Reports suggested that the company was involved in lending to shell companies and related parties, using these transactions to inflate its assets and profits.

The cracks began to widen in 2018 when Infrastructure Leasing & Financial Services Limited (IL&FS) defaulted on its debt obligations, triggering a liquidity crisis in the Indian financial market. This event significantly impacted non-banking financial companies (NBFCs) like DHFL, making it increasingly difficult for them to raise funds. DHFL struggled to meet its debt obligations and began delaying payments to its creditors. This led to a downgrade in its credit ratings, further exacerbating its financial woes.

In 2019, the Reserve Bank of India (RBI) superseded DHFL’s board and appointed an administrator to oversee the resolution process. The company was subsequently admitted into insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). Piramal Capital and Housing Finance Ltd. ultimately acquired DHFL in 2021, marking the end of DHFL as an independent entity. The DHFL saga serves as a cautionary tale, highlighting the risks associated with aggressive lending, poor corporate governance, and inadequate risk management within the financial sector. It underscores the importance of robust regulatory oversight and ethical business practices to ensure the stability and integrity of the financial system.