ICICI may farm out housing finance arm

MUMBAI: The Reserve Bank of India (RBI) has indicated to banks that they should conduct home finance business in-house rather than duplicate the process through a wholly owned subsidiary. Following this, ICICI Bank is considering either farming out its housing finance arm — ICICI Home Finance — or rolling back into the parent bank.

Other banks with housing finance arms have already diluted stake and do not have wholly owned subsidiaries. According to sources, the RBI wants that all activities that can be done departmentally within the bank should not be done through a wholly owned subsidiary. For new banks that are seeking a licence, the RBI has already made this a precondition and the guidelines state that where an NBFC seeking a bank licence has a home finance arm, the home finance activity should be transferred to the bank.

Splitting the mortgage business between the bank and the home finance company creates a regulatory arbitrage. Banks for instance cannot lend below their benchmark Base Rate. HFCs, however, can still lend below their prime lending rate. Banks are also subject to stringent guidelines on outsourcing and employing agents.

Besides ICICI Bank, other bank-promoted home finance companies include Can Fin Homes, Cent Bank Home and PNB Housing Finance.

According to ICICI Bank's annual report, the ICICI HF has a net worth of around Rs 1,491 crore on FY15 and a loan book close to Rs 8,000 crore. The company has 527 permanent employees on its rolls with Rohit Salhotra as the chief executive and Rajiv Sabharwal, executive director at ICICI Bank, is the chairman.

Can Fin Homes does not qualify as a subsidiary as its promoter Canara Bank has diluted stake to 43.45%. Cent Bank Home Finance is a joint venture between Central Bank of India, HUDCO, Unit Trust of India and National Housing Bank. PNB Housing Finance, too, is not a wholly owned subsidiary with the promoter having diluted stake. Private equity firm Carlyle in February acquired a 49% stake in the PNB's HFC from another PE firm Destimoney.

ICICI Bank