Central Bank restructuring home finance arm before selling

Central Bank of India, Mumbai-based public sector lender is in the process of restructuring its home finance subsidiary, Centbank Home Finance, for this the bank has appointed Ernst and Young for advice on restructuring and valuation. The bank has an aim to raise the valuation of the mortgage company before selling it.

In this process bank will be buying the shares of other shareholders in the home finance arm. According to Central Bank executive bank has already started negotiating with other shareholders. The bank plans to sell home finance arm over the next two years.

In the home finance arm Central Bank is having a 59.5 per cent stake in the subsidiary while UTI and National Housing Bank have 16 per cent each. Hudco is holding the remaining 8.5 per cent stakes. Central Bank has nominated five directors on the board of Centbank Home Finance, while Hudco, NHB and UTI have nominated one director each.

At present the home loan company capital base amount to Rs 20 crore while the net worth is Rs 48 crore. During 2008-09, the mortgage company's net profit was Rs 3.18 crore. By the end of March its gross outstanding loans stood at Rs 257.88 crore.

In the current financial year, Centbank Home Finance has decided to disburse around Rs 150 crore, which will be twice the amount sanctioned last year. It will be also increasing the average loan amount to Rs 10-15 lakh from the present level of Rs 3 lakh.

Recently Central Bank gave a credit line of Rs 100 crore in order to increase the profitability of Centbank Home which would partly be used to repay the entire debt of NHB.

As a restructuring exercise the head office of Centbank Home office has been shifted to Mumbai from Bhopal.

Several public sector banks who has opened separate home loan arm have exited or are in the process of exiting the business to avoid duplication ad they are already offering home loans.

Earlier in May, Punjab National Bank had sold 26 per cent in its home loan arm, PNB Housing Finance, to Dawnay Day, with an option to sell another 25 per cent. IDBI Bank is also in the process of selling its home loan subsidiary.