RBI's Role in the DHFL CIRP and Cronyism. Review on Reserve Bank Of India

I once believed that the Reserve Bank of India was the guardian of Indias financial system, ensuring fairness, transparency, and the protection of small depositors. The DHFL episode, however, has completely shattered that illusion. The RBI-appointed Committee of Creditors(CoC), which was supposed to oversee a fair insolvency resolution, acted like a puppet of large corporate interests, sidelining retail investors who collectively held a majority of voting rights. Catalyst Trusteeship, appointed as a neutral trustee, exercised disproportionate influence and consistently made decisions that favored institutional bidders over the ordinary depositor.

The resolution process systematically ignored critical provisions under the Insolvency and Bankruptcy Code(IBC), particularly Section 66, which mandates the recovery of fraudulent or preferential transactions. These recoveries, estimated in thousands of crores, were instead appropriated by the successful bidder Mr. Ajay Piramal, effectively reducing the cost of acquiring DHFL assets to a symbolic amount. The CoC and the resolution applicant bypassed any meaningful consideration of alternative proposals from former promoters and full-repayment plans for FD/NCD holders, despite legal guidance and repeated court observations urging fair treatment of all creditors.

Retail investors were left completely in the dark. Key documents, such as CoC meeting minutes, valuation reports, and waterfall-distribution schedules, were kept behind a screen, and objections raised by depositors were routinely ignored. The entire process was opaque, with voting weights allegedly/reportedly manipulated and trustee powers expanded without justification. Even when procedural and ethical violations were highlighted by NCLT and NCLAT, the CoC and its appointees continued to push forward a resolution that disproportionately benefited politically and economically connected bidder Mr. Piramal, leaving ordinary depositors with heavy losses/haircuts.

Further investigations revealed conflicts of interest and prior business or political ties between certain resolution applicants and DHFL insiders, which the RBI failed to address. Statutory auditors and credit-rating agencies also failed in their duties, providing clean reports and high ratings that misled depositors and masked systemic malpractices, including fund diversion, circular financing, and evergreening of NPAs. Repeated appeals to oversight agencies CVC, CBI, ED, and even the Supreme Court were ignored or delayed, leaving victims without recourse and amplifying their sense of betrayal.

The RBI, in its supervisory capacity, reportedly failed to uphold its constitutional and regulatory mandate. By appointing a CoC that ignored small investors, allowed conflicts of interest to go unchecked, suppressed recovery claims, and enabled the transfer of wealth from depositors to corporate cronies, it became an enabler rather than a regulator. The DHFL debacle is not merely a corporate fraud; it is a systemic collapse of institutional ethics, with devastating consequences for ordinary citizens who trusted the financial system.

Verdict: 01 Star The RBI has seemingly betrayed the very citizens it was supposed to protect. Until its processes are reformed, transparency ensured, and accountability enforced, public trust in Indias central banking system remains deeply compromised.