IDBI Bank to take over its home fin subsidiary

IDBI Bank will finally be merging its housing finance subsidiary, IDBI Homefinance, with itself. The decision on this was taken after the board of the bank decided to indefinitely postpone the plan to sell the company.

On January 23 a board meeting was held in which the government nominee Arun Ramnathan asked IDBI to postpone its sale of IDBI Homefinance without mentioning any particular reason. According to information provided by the insiders while Mr Ramnathan, who is also finance secretary, did not attend the board meeting, he sent a letter to the board asking it to postpone the proposal to sell IDBI Homefinance, without giving any reason. When ET reporter contacted, IDBI officials refused to comment on the issue.

Although IDBI Bank had short-listed three bidders — Dewan Housing Finance Company, Tata Capital and Religare — for the sale of its wholly-owned subsidiary and the board was to select the final winner in the January meeting. According to industry sources the Dewan Housing was expected to acquire the company since it had emerged as the highest bidder, offering Rs 311 crore against Rs 211 crore by Tata Capital and Rs 208 crore by Religare.

However the officials from each of the three short-listed companies told ET, “IDBI has conveyed to the three short-listed companies that the sale of IDBI Homefinance has been put on hold”.

IDBI officials remarked, “In all likelihood, it (IDBI Homefinance) would be merged with IDBI. On a standalone basis, there is no point in competing with the subsidiary for the same market”.

An official who is closely related to the development informed that the sale might have been put on hold mainly due to political reasons. The official added, “The government may not want to be seen selling a company to private players just before the elections. They may also be worried about layoffs that could occur soon after the sale, particularly at a time when the government is persuading the private sector to refrain from such activities”. Captivatingly, IDBI’s contact to IDBI Homefinance could also have thrown a spanner in the sale process.

Moreover IDBI Bank has extended over Rs 2,000 crore to IDBI Homefinance at a concessional rate. Before the sale, IDBI’s exposure could have been taken over by the acquiring company. As per a pre-condition to bidding, IDBI would have given bidders an option either to pre-pay the loan or get it refinanced within one-year.

Otherwise, the acquirer could guarantee with IDBI those assets which it (IDBI Homefinance) had financed with the loan it had taken from IDBI. However the bank has already lent over Rs 300 crore to Dewan Housing. If Dewan Housing would have been emerged as the winner, IDBI’s exposure to the group would have been high.