An Indian court on Wednesday allowed banks to recover some dues from shadow lender Dewan Housing Finance Corporation Ltd, granting relief to banks that had earlier been staring at a $5.6 billion hit to their books.
An earlier court ruling had barred debt-laden DHFL from making any payments on dues, including those on securitized loans that it had sold off to banks. Over the years lenders had bought loans worth nearly 400 billion rupees ($5.61 billion) from DHFL.
That ruling had spooked bankers, who warned it could jeopardize the entire loan securitization market in the country, further straining a banking system already hobbled with nearly $140 billion in bad debt.
The banks argued that these loans had been bought over by DHFL which was only acting as a collection agent on their behalf and therefore access to these dues should be allowed, which now has been granted.
DHFL, which used to be the fourth-biggest housing finance company in India, has roughly 1 trillion rupees of debt and is in the process of seeking creditor approval for a rescue plan to tide over its liquidity crunch.
The creditors had earlier hinted that if the judgment on Wednesday had not gone in their favor then it could have had an impact on the rescue plan which has already been marred by delays and litigation.