What is Cost of Equity? – Meaning, Concept and Formula
February 12, 2025
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In the recent past, the economy of India has been hit by one corporate marauder after another. It is surprising how the people who are calling the shots in an economy on any given day suddenly disappear from the country and turn rogue. However, this same story has played out in India over and over again. Billionaire entrepreneurs like Nirav Modi, Mehul Choksi, Vijay Mallya and Lalit Modi have all defrauded the people of India. These are just a few hi-flying names. There are many promoters of small and mid-cap companies that are known to be involved in scams.
The Indian investors, as well as the general public, was hoping that the scams had ended and now business will continue as usual. However, it seems like they are in for a rude shock. A little-known media company called “Cobrapost” has made some surprising revelations against Dewan Housing Finance Ltd (DHFL) which is amongst the renowned Non-Banking Financial Corporation (NBFCs) in the country.
DHFL has alleged that there is no substance behind these allegations and that Cobrapost seems to have malicious intent. However, the articles being published by Cobrapost seem to be citing exact evidence. This is the reason that these allegations cannot be simply brushed aside even though they are not really coming from a credible source.
In this article, we will have a closer look at what this alleged DHFL scam is and how it is likely to affect the Indian economy.
DHFL is a non-banking financial company. This means that all banks are supposed to lend a certain portion of their funds to companies like DHFL. This is the reason that money deposited by small depositors in bank accounts of State Bank of India, Bank of Baroda, etc. ends up in the hands of NBFC’s like DHFL. As per recent data, the Indian banking sector had invested at least $3 billion in DHFL. Along with this amount, DHFL has also borrowed heavily by issuing bonds and other debt instruments. These instruments are also largely held by the retail investor. Hence, if the allegations against DHFL are true, it could signify massive losses for the retail investor.
Let’s have a look at the alleged way in which DHFL was able to siphon off money which was provided to it by public sector banks for the purpose of lending to others.
The problem is that DHFL has lent money to these companies without taking inadequate security. In the Indian banking industry, loans given to companies are secured via taking assets as collateral. Also, promoters are supposed to give personal guarantees to further ensure the safety of these loans.
DHFL has not followed these processes. As a result, public money has been lent out to people without collateral. Since there is no collateral, this money cannot be easily recovered. Also, the promoters do not have any personal assets. Hence, they cannot be prosecuted either. Cobrapost has alleged that a lot of these loans given to shell companies have now become non-performing assets (NPA’s)
The bottom line is that the allegations made against DHFL are explosive. A scam of this magnitude will cause a lot of damage to Indian investors. However, Cobrapost has made the allegations with a lot of conviction and seemed to have enough proof to back its claim. This revelation will ensure that the regulatory agencies will have to investigate the allegations thoroughly.
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