IDBI Bank to merge home finance arm with itself

After much debate over the fate of its home finance subsidiary, IDBI Bank today decided to merge IDBI Homefinance Ltd with itself.

The board of directors gave an in-principle approval for merging IDBI Homefinance, a 100 per cent unlisted subsidiary, the bank informed the Bombay Stock Exchange today.

IDBI Homefinance unit’s outstanding loan portfolio was Rs 3,697 crore at the end of June 2010. The Pune-based unit posted a net profit of Rs 52 crore in 2009-10. Its net non-performing assets dipped from 0.55 per cent at the end of March 2009 to 0.34 per cent in March 2010.

A senior IDBI Bank official said: “It is a small outfit with 120-130 people and 25 branches. Our earlier plans to sell did not get the government’s approval. After a review, we have an opted to merge the entity.”

This merger, whenever it is through, will help bank in two ways. One, it would increase its priority sector lending portfolio. Second, it will release capital for loans given to the subsidiary. Being an unlisted wholly-owned subsidiary, bank officials expect the process will not take too long. IDBI had acquired the business from Tata Home Finance almost seven years ago.

The bank had scrapped plans to sell the company after the government did not approve the plans.

Bank then headed by Yogesh Agarwal had kicking off sale process by inviting bids in 2008.

Tata Capital, Religare and Dewan Housing had evinced interest in the company. Dewan Housing had become the highest bidder agreeing to pay over Rs 300 crore.

The bank was reportedly looking at both the options of either retaining the mortgage unit as a wholly owned subsidiary or merge it with itself.