DHFL Quarterly Results: Auditors raise several red flags

Dewan Housing Finance Corporation (DHFL) filed its long-delayed audited results for the quarter ended March 31 late on Monday, and revealed that its auditors had raised several red flags around its numbers.

The auditors raised the following questions:

1) There are intercorporate deposits of about Rs 5,600 crore. DHFL chairman Kapil Wadhawan had given an explanation about some of them. Auditors say there are deficiencies in the way in which they were granted and rolled over. The company has not given us how they evaluated credit evaluation of those borrowers. The company said they will remedy the deficiencies, but we do not have any evidence of how they will do it. So the amount questionable is Rs 5,600 crore.

2) The next is with regards to Cobrapost allegations, relating to fraud and diversion of funds. An independent group of CAs have been appointed by the committee. What Deloitte says is that they have advised more areas to be covered but their advice was not heeded. The CA report itself has not been approved by the audit committee. Deloitte says other agencies and lenders are also investigating the Cobrapost allegations.

3) There is another set of Rs 32,450 crore which Kapil Wadhawan had pointed out and which he had marked down. This Rs 32,450 crore includes one set of Rs 16,500 crore odd loans where cheques were received for these loans as interest payments of about Rs 1,800 crore. They were not banked.

4) Another Rs 24,000 crore of loans, which the finance committee had asked for the end-user to verify, has not yet been provided. So DHFL totally had devalued these loans by about Rs 3,200 crore. What Deloitte says is that they cannot vouch for any of these numbers, i.e. whether the loans were granted properly or secured properly.

They have another tiny observation about NHB writing down the capital. They say that they do not know what will be the impact because the company is not providing us with additional data. There are deferred tax assets which the company has assumed. A deferred tax can be assumed if you will pay tax in the future years, but if your certainty about going concern is not there, how do we attest for it – is what the auditors are asking. So those are smaller things.

Basically for about Rs 32,400 crore of loans where you do not know end-use and where the cheques have not been banked plus that Rs 5,600 crore of intercorporate deposits. If you add those there is about Rs 37,000 crore and even after the write-down, it will come to Rs 35,000 crore.