India’s central bank said on Wednesday it would initiate bankruptcy proceedings against Dewan Housing Finance Ltd (DHFL), as it seeks to address governance concerns and defaults at what was once one of the country’s biggest shadow lenders.
The Reserve Bank of India said it had superseded the board of DHFL and appointed R. Subramaniakumar, the former chief executive of state-run Indian Overseas Bank as the administrator.
DHFL’s creditors include mutual funds, pension funds, insurance firms and a wide array of retail investors, and its collapse could impact India’s already ailing banking sector and further weaken economic growth. The firm owes lenders close to 1 trillion rupees ($14 billion).
India’s shadow banking sector has been under stress after a string of defaults by Infrastructure Leasing and Financial Service Ltd (IL&FS) last year triggered fears about contagion in the financial sector.
DHFL had in September submitted a draft resolution plan proposing to convert debt to equity, while seeking to sell assets and raise more capital.