The National Housing Bank (NHB) and Bank of Baroda (BoB) have initiated talks on the possible exit of the former from their joint venture BoB Housing Finance Ltd. Clash of interest in the roles of NHB as a regulator of housing finance companies (HFCs) on the one hand and as an equity holder in BoB Housing on the other has triggered such a move.
BoB holds 67 per cent stake in BoB Housing, which was incorporated in December 1990, while the balance is held by NHB. The regulator had picked up the stake as part of its efforts to seed housing finance business in the country.
"We are in talks with NHB on the issue of fair valuation of its stakeholding in BoB Housing. Once this is settled we will buy out NHB's stake, thereby turning the company into our wholly owned subsidiary," A K Khandelwal, executive director of BoB and chairman of BoB Housing, said.
BoB Housing, which reported a 23 per cent increase in net profit at Rs 11 crore in 2001-02, has also drawn up plans to raise additional capital via a Rs 30 crore rights issue. This will not only enhance the capital adequacy ratio (which stood 12.90 per cent as on March 31, 2002) but will also increase availability of cheap funds to the company and augment its borrowing capacity. The company is awaiting the regulator's clearance in this regard.
"BoB, in proportion to its equity holding in BoB Housing, will subscribe to Rs 20 crore in the proposed rights issue. If NHB decides against subscribing to its portion of the rights issue (Rs 10 crore), we will subscribe to the entire issue," Khandelwal said.
When asked if a merger of BoB Housing with BoB was being contemplated, he observed that the housing finance company was started when the bank did not have much of a retail banking thrust.
"Both the parent and the subsidiary are now competitors. Cost of funds of BoB is 6.65 per cent while that of the housing finance company is 10.71 per cent. But we (BoB Housing) intend overcoming the disadvantage of high cost of funds by repositioning ourselves, raising public deposits, working on thin margins, expanding our branch network to growth centres, strengthening our human resources and gaining visibility. However, we may examine the merger option sometime in the future," Khandelwal said.
Meanwhile, BoB Housing is set to raise funds for the first time via public deposits from next month. Minimum deposit amount has been pegged at Rs 25,000 and in multiples of Rs 1,000 thereafter. The deposit period ranges from 12 months (interest payable is 7.80 per cent per annum) to 84 months (interest: 8.65 per cent) and deposits will qualify for deduction upto Rs 9,000 under Section 80 L of the Income-tax Act. Crisil has given the deposits a 'FAA+' rating indicating high safety.
