Delhi Government Moves to Wind Up Obsolete MSME Lender with Rs 80 Crore Loan Waiver
The Delhi government is preparing to take a significant step toward winding up the financially troubled Delhi Financial Corporation (DFC) by likely waiving an outstanding loan of approximately Rs 80 crore. This move would clear the path for the permanent closure of this government-owned MSME lender, which officials have described as both financially and operationally obsolete in today's competitive market.
Proposal Details and Asset Transfer Plan
A recently prepared proposal, which has been reviewed by officials, seeks to write off the outstanding loan along with all accrued interest. In return, DFC would transfer all its recoverable assets to the Delhi government. The proceeds generated from monetizing these assets would then flow directly to the government, effectively converting what was once a non-performing loan into tangible public assets.
This strategic approach aims to salvage value from a failing institution while minimizing further financial exposure for the state. Officials emphasize that this conversion represents a pragmatic solution to a long-standing problem, turning liabilities into potential public benefits through careful asset management.
Historical Context and Current Financial State
Established in 1967, DFC has historically provided loans to various sectors including hotels, hospitals, transport units, and commercial establishments primarily in Delhi and Chandigarh. However, the corporation's board has formally acknowledged that its entire equity has been completely eroded. In November 2025, the board advised the Delhi government to initiate the winding-up process while ensuring fair treatment for its remaining staff members.
Officials point to structural and irreversible problems within DFC's business model. The corporation borrows funds exclusively from the government at interest rates around 10% and lends at approximately 12%. Meanwhile, banks and other financial institutions offer MSME loans at significantly lower rates ranging from 8.5% to 10.5%. This substantial disadvantage has rendered DFC unable to compete effectively in the current MSME financing market.
Operational Decline and Staff Implications
The competitive disadvantage has led to a complete halt in new loan disbursements since the 2023-24 financial year. Currently, DFC's only active function involves recovering an aging loan portfolio. The corporation employs 28 staff members, including 14 Group A and B officers along with 14 Group C employees.
The winding-up plan proposes compulsory retirement as an option for officials who cannot be redeployed elsewhere within the government system. Some staff may potentially be transferred to other departments such as the Delhi SC/ST/OBC/Minority & Handicapped Finance & Development Corporation, provided suitable positions are available and feasible.
Financial Assessment and Closure Rationale
An internal assessment conducted by government officials concluded that reviving DFC would be fiscally imprudent. Estimates suggest that Rs 120-150 crore would be required merely to restore positive net worth and meet regulatory norms, excluding additional costs for essential technology upgrades and hiring specialized professionals in risk management, finance, and information technology.
Financial data reveals a consistent decline over the past five years. Gross non-performing assets increased from 41.8% in 2019-20 to 55.8% in 2023-24. Meanwhile, net worth plummeted to negative Rs 15.5 crore, with accumulated losses crossing Rs 42 crore. The outstanding loan from the Delhi government has grown to approximately Rs 80 crore as of September 2025.
Phased Closure Process and Governance Principles
The closure will be implemented through a carefully structured phased approach that includes:
- A one-time settlement scheme for existing borrowers
- Aggressive recovery efforts for outstanding loans
- Systematic monetization of remaining assets
- Settlement of employee dues including gratuity and leave encashment
The council of ministers is expected to grant in-principle approval for the winding-up process. Following this approval, the government will issue formal closure notifications and establish a winding-up committee chaired by the administrative secretary of finance. This committee will implement a three-month closure roadmap, culminating in final legal dissolution according to established procedures.
Officials emphasize that formal closure will permanently eliminate the risk of repeated bailouts while stopping growing pension and salary liabilities. One official stated, "This decision aligns with the principle of minimum government and maximum governance. The move will stop recurring losses, protect taxpayers' money, and close an institution that no longer serves Delhi's economic needs effectively."
The comprehensive approach reflects a strategic decision to redirect resources toward more effective governance mechanisms while addressing the practical realities of a financial institution that has outlived its operational relevance in a transformed economic landscape.
