Anatomy Of A Corporate Collapse: The Downfall Of Dewan Housing Finance Corporation Ltd

Vidisha Pagaria, OP Jindal Global University

ABSTRACT

The DHFL scam stands as a significant example of the catastrophic failures within the Indian financial system, particularly in the governance and oversight of Non-Banking Financial Companies (NBFCs). Dewan Housing Finance Corporation Ltd. (DHFL), a key player in mortgage financing, primarily serving middle- and lower-income families, became emblematic of these failures. The exposure of DHFL’s fraudulent activities, amounting to over Rs. 30,000 crores, underscores the severe deficiencies in corporate governance and the inability of existing regulatory frameworks to prevent such systemic risks.

This research delves into the DHFL scandal, illustrating how a combination of poor governance, insufficient compliance with Environmental, Social, and Governance (ESG) standards, and the incompetence of financial analysts culminated in one of the most significant financial frauds in India’s history. The analysis also highlights the startling fact that while a relatively obscure news outlet could uncover this extensive fraud by simply reviewing publicly available documents, the responsible authorities and more prominent financial institutions failed to detect or prevent the wrongdoing.

The fraudulent practices at DHFL, particularly the disbursement of unsecured loans to shell companies, exacerbated the twin balance sheet problem in India, contributing to the burgeoning issue of non-performing assets and further eroding public trust in the financial sector. The paper argues for a comprehensive overhaul of the regulatory framework governing NBFCs, as evidenced by the Reserve Bank of India’s proposed four-tier structure, to mitigate such risks in the future. The DHFL scam not only highlights the urgent need for stricter regulatory oversight but also serves as a cautionary tale about the broader implications of governance failures in financial institutions.