IDBI Bank revives plan to sell mortgage subsidiary

Dewan Housing remains top contender; govt wants merger.

IDBI Bank has revived the proposal to sell IDBI Home Finance, its wholly-owned subsidiary, to Dewan Housing Finance, nearly seven months after it had to put the plans on hold due to a last-minute government intervention.

Sources close to the development said the bank had approached the finance ministry with a fresh request to sell the company though the government was yet to decide on the issue.

The latest move comes after IDBI Bank pumped in Rs 20 crore into the home finance company to shore up its capital base to meet the National Housing Bank-prescribed norms.

While IDBI Bank did not respond to a questionnaire sent on Friday afternoon, Dewan Housing Finance Chairman and Managing Director Kapil Wadhawan said he did not want to comment on the issue. Sources said the bank proposed to sell its shares in the home finance arm at Rs 21.46 each and the total consideration would be a little over Rs 350 crore.

In August 2008, IDBI Bank had valued IDBI Home Finance at Rs 351 crore, which was lowered to Rs 333 crore in early January on the grounds of poor market conditions.

The exercise conducted in January, included IDBI Home Finance’s value per share of Rs 22.95 and a premium was also built in. Dewan Housing had emerged as the highest bidder, but its bid was Rs 21.46 and the total consideration offered was Rs 311.12 crore.

Tata Capital was the second highest bidder (Rs 225 crore), followed by Religare (Rs 221 crore).

Since January, the market had improved and IDBI Bank had also pumped in additional equity, a source pointed out. For instance, based on its market capitalisation Dewan Housing’s valuation has shot up by over 40 per cent from Rs 707 crore on January 6, when IDBI Home Finance valuation was undertaken, to Rs 990 crore now.

IDBI Bank, which was to take up the proposal in late January, had to defer a decision on a last-minute missive from the finance ministry. In March, the government cited the low bids to advise the bank against selling IDBI Home Finance.

“The highest bid received (Rs 311.12 crore) is even lower than the revised valuation (Rs 333 crore). It is felt against this background that the timing of the bids is inappropriate. Markets are weak,” the government said.

While suggesting IDBI Home Finance’s merger with the bank, the finance ministry pointed out that IDBI acquired the mortgage company to de-risk its portfolio and move from being a development financial institution to a universal bank.

The ministry had also said that the sale would result in a breach of IDBI Bank’s single-party exposure norm of Rs 2,000 crore.

“There is also no guarantee that Dewan Housing Finance would (a) keep the (192) employees (b) not do what it wants with the acquired company, including sale at a profit,” it added.