Mumbai: Three firms—Tata Capital Ltd, Religare Enterprises Ltd and Dewan Housing Finance Ltd—have bid to buy IDBI Homefinance Ltd, the mortgage arm of IDBI Bank Ltd (IDBI), a banker familiar with the development said.
The bids will be evaluated before arriving at a valuation, the banker said on condition of anonymity. The last date to submit bids was Friday, 9 January.
New ventures: Praveen Kadle, MD of Tata Capital, one of the bidders, has said the firm plans to float a subsidiary exclusively for mortgages. Abhijit Bhatlekar / Mint
State-owned IDBI Bank decided to sell IDBI Home-finance as it was unable to scale up its mortgage network in a field dominated by the Housing Development Finance Corp. Ltd, or HDFC, ICICI Bank Ltd and State Bank of India.
Religare Enterprises informed the Bombay Stock Exchange on Friday that its board has approved a plan to bid for IDBI Homefinance.
A senior Tata Capital executive also confirmed the firm’s bid for IDBI Homefinance. He did notwant to be named.
Dewan Housing’s vice-chairman and managing director Kapil Washawan said he did not want to comment “at this stage”.
For the Tata group, acquiring IDBI Homefinance would be a return to its mortgage business. Tata Finance Ltd had sold the home finance company to IDBI Bank in September 2003.
Praveen Kadle, managing director of Tata Capital, said on Friday the firm plans to float a subsidiary exclusively for mortgages. Tata Capital is the non-banking finance subsidiary of Tata Sons Ltd, the holding company of the Tata group.
The Tata Capital executive mentioned earlier said the firm plans to scale up the business with a ready-made housing finance company and could add 18 branches to the existing 35.
Market leader HDFC, with 262 branches in 2,400 towns and cities, had disbursed Rs32,875 crore in loans till March to finance 3.2 million homes.
Dewan Housing says on its website that it disbursed Rs5,300 crore in housing loans for the fiscal ended March.
IDBI Homefinance had reported profits of Rs30 crore for fiscal 2008, when it disbursed Rs2,710 crore in loans. It had disbursed Rs563 crore in loans the previous year.
The Economic Times newspaper had reported on 30 December that Tata Capital and Religare planned to bid for IDBI Homefinance for about Rs200 crore.
HDFC, quoting reports by the European Mortgage Federation in 2006 and the Asian Development Bank in 2007, had said in a presentation to investors after its September quarter results that there was more scope for growth in the home finance sector as the ratio of mortgages to gross domestic growth was the lowest in India at 6%. This ratio is 12% in China, 101% in Denmark, and 80% in the US.
In India, there is a housing shortage of 24.7 million units—14.1 million in villages and 10.6 million in cities. Rising incomes, tax incentives and transformation of villages into urban or semi-urban areas are key factors driving this business, HDFC said in its presentation.
Religare Enterprises, promoted by Malvinder Singh, the erstwhile owner of India’s largest drug maker by sales, Ranbaxy Laboratories Ltd, has been aggressive in the financial services business since June, after the promoters sold their stake in the pharmaceutical company to Japan’s Daiichi Sankyo Co. Ltd.
After the Ranbaxy stake sale, Religare acquired Lotus Mutual Fund in India, bought Hichens Harrison and Co. Plc., London’s oldest brokerage and investment firm, and plans to float a film fund with Vistaar Entertainment Ventures Pvt. Ltd.
Religare also has a joint venture with Aegon NV, a life insurance and pensions company based in the Netherlands.
Mortgage companies are safe lenders as they follow a low loan-to-value ratio. This means companies lend lower amounts to the value of the property and the difference has to be made up by the borrower. They also follow a repayment schedule of a mix of high interest and low principal amount, reducing their risk on the loan.