Why Delhi Government Is Moving to Wind Up Loss-Making MSME Lender
The Delhi government is set to wind up the Delhi Financial Corporation (DFC), a state-owned lender for micro, small and medium enterprises (MSMEs), after years of mounting losses and operational stagnation. Officials have proposed waiving the roughly ₹80 crore outstanding loan that the corporation owes to the government to pave the way for its closure and turn a non-performing asset into recoverable value for taxpayers.
What was DFC’s role?
Established in 1967 under the State Financial Corporation’s Act, DFC was designed to fuel the growth of MSMEs and the service sector in the national capital by providing term loans for business activities such as hotels, hospitals, transport units and commercial establishments. Over decades, it acted as a crucial credit source for enterprises that struggled to access formal financing.
However, in recent years, the corporation has become “financially and operationally obsolete,” according to government assessments. Its lending activity essentially dried up with zero new loans disbursed in the 2023-24 fiscal year. As new business opportunities evaporated, DFC’s only functioning role has been to manage and recover an ageing book of loans.
Critically, DFC’s financial health deteriorated sharply: assets eroded, equity was wiped out, and accumulated losses exceeded ₹42 crore. Gross non-performing assets — loans not being repaid — climbed steadily, rising from around 42 % in 2019-20 to nearly 56 % in 2023-24. Its net worth plunged into negative territory, standing at roughly minus ₹15.5 crore, signaling deep insolvency.
How did DFC end up here?
Part of the struggle stemmed from DFC’s inability to compete in the modern MSME credit market. While the corporation borrowed funds from the Delhi government at about 10% interest and on-lends at around 12 %, commercial banks and newer financial institutions have been offering MSME loans at much lower rates, typically between 8.5% and 10.5%. This gap made DFC’s products unattractive to borrowers, effectively pricing it out of the market.
With its credit schemes largely defunct, DFC lacked the technology, risk management systems and specialised staff needed to operate in today’s competitive financial ecosystem. The board, in a November 2025 meeting, acknowledged that the organisation’s capital base had been fully eroded and recommended initiating the winding-up process while safeguarding the interests of remaining employees.
Faced with dwindling prospects for revival and the fiscal imprudence of recapitalising the institution, the government is now preparing a structured closure plan. Key elements include waiving the outstanding ₹80 crore loan and transferring all recoverable assets to the state. These assets will be monetised, turning an underperforming loan into tangible public value, and proceeds will be directed back to the government.
The winding-up process will unfold in phases under a dedicated committee led by the administrative finance secretary. This roadmap includes aggressive recovery efforts, a one-time settlement initiative for borrowers, and the orderly settlement of employee dues like gratuity and leave encashment. Some staff may be redeployed to other government departments where feasible.
Officials say formal closure will eliminate persistent liabilities, including repeated bailouts and long-term salary and pension obligations, and align with the principle of “minimum government, maximum governance.” The cabinet is expected to give in-principle approval soon, marking the end of a once-important but now obsolete MSME lending institution.