Central Bank offers to buy out mortgage arm partners

Public sector lender Central Bank of India has offered to buy out other shareholders in its home finance subsidiary, Centbank Home Finance. It is offering Rs 104.8 per share.

“We think this is a fair price and hope to complete the buyback in the current quarter,” a senior bank executive told Business Standard.

Central Bank has a 59.5 per cent stake in the subsidiary, while Unit Trust of India (UTI) and National Housing Bank (NHB) hold 16 per cent each. The remaining 8.5 per cent is held by Housing and Urban Development Corporation (Hudco). While Central Bank nominates five directors on the board of Centbank Home Finance, Hudco, NHB and UTI nominate one director each.

The capital base of the home loan company is Rs 20 crore, while its net worth is Rs 48 crore. During 2008-09, the mortgage company’s net profit was Rs 3.18 crore. Its gross outstanding loans were Rs 257.88 crore at the end of March.

According to sources, it is likely that Central Bank will sell Centbank Home Finance as it has started the restructuring exercise with a view to raise the subsidiary’s valuation.

The Mumbai-based public sector lender had appointed Ernst and Young for advice on restructuring and valuation, said bank sources.

In order to increase the profitability of Centbank Home, Central Bank recently provided it a credit line of Rs 100 crore that would be partly used to repay the entire debt of NHB. The recast included shifting the head office of Centbank Home from Bhopal to Mumbai.

Also read: oct 22: Central Bank starts process to sell mortgage arm