Central Bank to buy out partners in mortgage subsidiary by month-end

Public sector Central Bank of India expects to complete the buyback of its mortgage finance subsidiary, Centbank Home Finance, by the end of the current financial year.

One of the promoters, Unit Trust of India (UTI), had already agreed to sell its 16 per cent stake in the home finance company to Central Bank, said a senior bank executive. “The two other stake-holders, National Housing Bank (NHB) and Housing and Urban Development Corporation (Hudco), will put up the matter before their respective boards in the next few days. We are confident that we will complete the process by March 31,” the executive added.

The bank is offering to buy out its partners at a price of Rs 104.8 per share, which is equal to the book value.

Central Bank has a 59.5 per cent stake in the subsidiary while 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, 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, its 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 a restructuring exercise 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 headoffice of Centbank Home from Bhopal to Mumbai.