Shriram Group plans to buy Citi Financial

Due diligence on, deal may happen in a week, say sources.

The Shriram Group is planning to buy Citi Financial India, a non-banking finance company (NBFC). The group said it had begun the due diligence and expected to conclude the deal in a week.

Sources in the group said the acquisition would be either through their consumer finance company or the proposed housing company.

Reports over the past months have suggested names of other potential bidders which have been doing due diligence on Citi Financial for a possible acquisition. The names included Lakshmi Vilas Bank.

Debasis Ghosh, the spokesman for Citigroup in India, declined comment.

Sources in the group said Shriram City Union Finance (SCUF), with a market cap of Rs 2,500 crore and an asset base of around Rs 6,000 crore, was being considered as the vehicle. So far, the company has been operating in Tamil Nadu and Andhra Pradesh. “Now that it has been decided to go pan-India, instead of going on our own, we have decided to take the acquisition route. Citi Financial is a good bet for us,” they said.

Citi Financial has 110 branches and 1,500 employees. The company has an asset base of Rs 7,000 crore, of which home loans are Rs 5,000 crore. The NBFC has a customer base of around 700,000 and has a good technology network.

“This is a good pick for us,” said an official, who did not want to be named. He said the proposed housing arm would have a capital base of Rs 100 crore. SCUF, a Bombay Stock Exchange-listed firm, got the board’s nod on Friday to form the new company.

SCUF reported an income of Rs 1,102.8 crore in 2009-10, an increase of 18 per cent over the year. The Shriram Group has presence in chit funds, consumer durable finance, life insurance, general insurance, stock broking, property development, project engineering and wind energy, among others.

Citi Financial falls under an entity called Citi Holdings and is looking to sell all its non-core investments. Citi Financial has been struggling with bad loans and has seen many retail loans given to low-income borrowers go sour, according to market sources.