The stock, which gained 76% last year after two years of sharp falls, rose 5% in early trading and hit an upper price limit of 27.55 rupees.

Once one of India's biggest non-banking financial companies (NBFCs), or "shadow" banks, DHFL had accumulated debts of almost 1 trillion rupees ($13.7 billion) before defaulting on payments to its creditors.

The NBFC industry, a key source of credit to millions, has been plagued by a credit crunch triggered by the collapse of lending major IL&FS in 2018.

Three entities - Adani Group, Piramal Group and U.S.-based asset manager Oaktree Capital Management - had been invited to bid for DHFL's entire loan book.

DHFL's creditors chose Piramal Capital and Housing Finance Ltd, a unit of billionaire Ajay Piramal's conglomerate Piramal Enterprises, DHFL told https://bit.ly/2XMlHrE stock exchanges on Sunday.

"There may be risk of litigation from co-bidders as some offered higher value," Jefferies said in a report on Sunday.

The outcome was a "marginal positive" for banks that have exposure to DHFL, including state-run Bank of India, Canara Bank and Union Bank of India and private-sector lenders such as Yes Bank, Jefferies added.

India's central bank is likely to propose tightening rules on shadow banks in a bid to strengthen the stressed sector's solvency and sustainability, Reuters reported on Saturday.

($1 = 73.2190 Indian rupees)

(Reporting by Sachin Ravikumar in Bengaluru; Editing by Subhranshu Sahu)