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The story of the Wadhawan brothers. How they built a solid business only to run it aground

The Wadhawan brothers sparkled with success till the tinsel deserted them 

Taloja is 50 km away from Mumbai and, often, the first association with the location is its jail. It has housed the likes of gangsters such as Abu Salem and Arun Gawli. One of its more recent occupants is Kapil Wadhawan, former promoter of DHFL, who has been there since this April. The CBI has charged Kapil and his brother Dheeraj with siphoning off money from the housing finance company, with the help of Rana Kapoor (Yes Bank’s co-promoter).

This is how their quid-pro-quo arrangement seems to have worked. The bank invested, CBI’s FIR alleged, Rs.37 billion in DHFL’s short-term debentures and Kapil paid a kickback of Rs.6 billion in the form of a loan given by DHFL to DOIT Urban Ventures, a Rana Kapoor group company. A similar favour seems to have been returned to Kapil’s family from Yes Bank: The bank had sanctioned a loan of Rs.7.5 billion to RKW Developers, DHFL’s group company and beneficially owned by Kapil and family. This loan was for DHFL’s Bandra reclamation project in Mumbai, but the investigating agency believes the entire amount was siphoned off by Kapil (and his brother Dheeraj) through their shell companies.

After the IL&FS crisis that shook the entire NBFC sector, the Yes Bank probe sounded the death knell for Kapil’s empire. Under pressure, he has had to sell much of what he owned just to stay afloat. Today, the core housing finance business that he created is on the block while he has landed in prison.

To Kapil, who is fighting hard to prove his innocence, this must seem like a nightmare. His grand story of creating a robust financial services conglomerate has diminished fast into a tragedy, with value erosion at all levels.

Outlook Business sent emails to DHFL and Kapil’s communications agency, and neither of them responded.

Swashbuckling days
What Kapil said around fifteen years ago still rings loudly in the ears of this financial-services professional. Kapil had said, “We will make a lot of money and so will you.” This was at a meeting to get the professional to join Dewan Housing Finance Corporation as CEO.

Narrating the story, the person does confess to having been impressed with the sales pitch. “Kapil can be very convincing when he wants to,” says the man, who today is an independent consultant. At that point, Dewan had just acquired Vysya Bank Housing in mid-2003 for Rs.230 million — a small change in today’s context as Dewan’s total housing loan portfolio would eventually reach Rs.9.5 billion. A few months prior to this, IFC, a World Bank affiliate, had given Dewan a loan of Rs.700 million. Known to be conservative with its lending decisions, this was viewed as a big breakthrough moment for Dewan. 

Much as the person gave the lucrative offer a good, hard thought, he decided to turn it down. “Kapil was slick. It’s hard to beat him when it comes to being suave or wearing the right labels, but there was also a sense of discomfort about the business,” says the consultant. According to him, there was always unease in the market about the company’s source of funding, and its proximity with the government and bureaucrats. Interestingly, that opinion about Kapil is unanimous in conversations with anyone who has known him as an employee, business associate or an acquaintance.

Kapil has always lived a hallowed life, in a sprawling apartment in Bandra, an upmarket Mumbai suburb. He owns several floors in the same building. Always surrounded by gun-toting security guards sourced from Israel (some of them are rumoured to have worked for Mossad) and Ukraine, Kapil’s existence was that of a film star, politician and a businessman all rolled into one. Ostentation was the name of the game. Many who knew him say he lived it up with a car fleet that had the likes of Rolls-Royce Phantom and Bentley, apart from owning a luxury yacht. “Kapil’s reputation was always ahead of the business. Nothing interested him more than access to the rich and powerful,” remarks a prominent Mumbai-based real-estate developer.

Right after acquiring an MBA from Australia’s Edith Cowan University, Kapil joined the family business of affordable housing in the mid-1990s, when his father Rajesh ran the business with brother Rakesh. When the two senior Wadhawans started out, in 1984, it was only the second housing finance company (then known as Dewan Housing) in the country after HDFC and they focused on Tier-II and Tier-III locations.

Dewan became a player of serious consequence and Rajesh Wadhawan (he passed away in 2000 after going through a period of poor health) had always dreamt of growing it beyond housing finance. In time, Kapil got into areas such as insurance, asset management and education, both organically and through acquisitions. A close associate reveals that Kapil’s grand desire was to get into banking at some point in time.

The story goes that the senior Wadhawan had told his son to look for opportunities in roti, kapda aur makaan (food, clothing and shelter). With housing already in their kitty, Kapil, then 32, ventured into grocery retailing. The first outlet of Spinach was opened in 2006. In less than two years, he acquired Sangam Direct from Hindustan Unilever followed by Sabka Bazaar, then owned by Delhi-based Home Stores. Officials, who worked with him then, recollect Kapil as being fascinated by scale but also being a bit of a flawed boss. “He would give the professionals room but would listen only to those who were close to him. Unfortunately, most of them were not very competent. Kapil was sophisticated to the world but a lala (intent only on making money for himself) deep down,” says one of them. The grocery business struggled after the first three years and was sold to Kishore Biyani. Kapil then allegedly planned a fashion retail foray but dropped the plan after being advised against it by those around him. All his attention was now back on housing finance and he was intent on other opportunities in financial services. That was 2011.