'Financially, operationally obsolete': Delhi govt may waive Rs 80 cr loan to wind up loss-making MSME lender

NEW DELHI: Delhi govt is likely to waive Rs 80crore loan extended to Delhi Financial Corporation (DFC), paving the way for winding up the loss-making govt-owned MSME lender that, officials said, has become financially and operationally obsolete.A recently prepared proposal, seen by TOI, seeks to let go of the outstanding loan along with the accrued interest in return for DFC transferring all its recoverable assets to Delhi govt. The proceeds from monetisation of these assets will go to govt, converting a non-performing loan into tangible public assets, officials said.Set up in 1967, DFC provides loans to hotels, hospitals, transport units and commercial establishments in Delhi and Chandigarh.

However, its board has formally acknowledged that the corporation's entire equity was eroded and, in Nov 2025, advised Delhi govt to initiate the winding-up process while ensuring fair treatment of its remaining staff.Officials said DFC's problems were structural and irreversible. The corporation borrows funds only from govt for around 10% interest and lends at about 12% while banks and other lenders offer MSME loans at significantly lower rates of 8.5-10.5%.

As a result, DFC has been unable to compete in the current MSME financing market. New loan disbursements completely stopped in 2023-24, leaving recovery of an ageing loan book as its only active function.The winding-up plan also proposes compulsory retirement as an option for officials who cannot be redeployed. DFC has 28 employees, including 14 groups A and B officers and 14 group C staff."Formal closure will permanently remove the risk of repeated bailouts and growing pension and salary liabilities," an official said.

The council of ministers is expected to grant an in-principle approval. Following it, govt will issue closure notifications and constitute a winding-up committee chaired by the administrative secretary (finance). The committee will implement a three-month closure roadmap, with the final legal dissolution under the law.The decision follows an internal assessment that reviving DFC would be fiscally imprudent.

Officials estimate that Rs 120-150crore would be required merely to restore positive net worth and meet regulatory norms, apart from costs for technology upgrades and hiring specialised risk, finance and IT professionals.Data shows a decline over the past five years. Gross non-performing assets rose from 41.8% in 2019-20 to 55.8% in 2023-24 while net worth fell to minus Rs 15.5 crore and accumulated losses crossed Rs 42 crore.

The outstanding loan from Delhi govt has grown to around Rs 80 crore as of Sept 2025.The closure will be carried out in phases, including a one-time settlement scheme for borrowers, aggressive recovery efforts, asset monetisation and settlement of employee dues such as gratuity and leave encashment. Some staff may be redeployed with Delhi SC/ST/OBC/Minority & Handicapped Finance & Development Corporation or other departments, if feasible."This is in line with the principle of minimum govt and maximum governance. The move will stop recurring losses, protect taxpayers' money and close an institution that no longer serves Delhi's economic needs," an official said.