Fake accounts, fraud borrowers, fictitious entities: DHFL scam

What are the key findings in the final forensic report submitted by auditor Grant Thornton in the Dewan Housing Finance Corporation Limited (DHFL) scam?

The Report

The forensic audit report by Grant Thornton investigating the affairs of DHFL was submitted to the RBI-appointed administrator in August-end. The key findings revealed hundreds of fictitious loan accounts, deposits routed through an imaginary entity in Bandra, and demand for recoveries totaling ₹14,046 crore.

It highlighted how names of fake housing loan borrowers were collected with details being ‘randomly picked from a database that appears to be created from the details pertaining to the closed loan accounts’.

The report has revealed the non-banking finance corporation (NBFC) siphoning off funds since 2006–07 through 91 fictitious entities (labelled as Bandra Book entities) operating from a Mumbai branch that did not exist. It also used 2.6 lakh fake accounts using names of account holders (who had already repaid) in the fake branch to siphon off funds.

The audit report further stated that the loan requests from ‘Bandra branch’ went to CMD, who cleared disbursals via email. The Wadhawan brothers or their relatives were found to be Directors or promoters of several of the Bandra Books entities through which they were allegedly siphoning off the funds.

DHFL used multiple software to hide fraudulent deals as the software helped the company hide the transactions from regulators and auditors and show inflated income to the stock exchanges, as per the forensic report.

The History

DHFL has been in news for all the wrong reasons for a while now.

In January 2019, news portal Cobrapost had claimed to unearth a financial scam where the promoters of DHFL and their associate companies were alleged to have committed a systemic fraud to siphon off more than ₹31,000 crore public money.

The company began defaulting and delaying payment of dues in the Financial Year 2019–20 with its debt piling up that it owes to banks, mutual funds, and bondholders. The rating agencies downgraded the entity’s ratings citing its deteriorating liquidity condition.

The Reserve Bank of India (RBI) in November 2019 filed an application to initiate a corporate insolvency resolution process against DHFL, following which Grant Thornton was appointed to conduct a transaction audit of the company.

Investigative agencies Central Bureau of Investigation (CBI), the Enforcement Directorate (ED), and the Serious Fraud Investigation Office (SFIO) have been probing the financial irregularities that are allegedly being conducted by DHFL’s promoters. The proprietors of the company Kapil Wadhawan and Dheeraj Wadhawan were arrested by investigating agencies in January this year.

Two weeks ago, market regulator SEBI had barred twelve promoters of the NBFC from accessing the securities market for violating market norms. The initial reports had also raised serious concerns over the authenticity and reliability of DHFL’s financial statements for the period between the financial year 2007–2019.

The Resolution Plan

As far as the company’s operations are concerned, its focus remains on restoring normalcy in operation, DHFL’s administrator R Subramaniakumar said. DHFL’s resolution plan is under process, under which the lender has given its applicants the option to bid for the whole company or for parts of the business.

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