Private sector lender, Kotak Mahindra Bank Ltd has plans to acquire the consumer finance arm CitiFinancial Consumer Finance India Ltd (CitiFinancial) of CitiBank's Indian division. The two parties are in talks over the issue.
The consumer finance wing of the bank is into personal and retail lending to the lower income group.
According to an investment banker, Kotak is undertaking due diligence of CitiFinancial's assets. Due diligence refers to the proper valuation of the target company's assets done by the predator company before going for a purchase. Due diligence is done for all forms of corporate restructuring like merger, acquisition, takeover etc.
According to an executive from Kotak, the talks between the two parties are "currently at a very, very preliminary stage" and "general" in nature.
CitiFinancial has been hit with losses since 2007. Unsecured personal loans have been the major accruing factor of these losses. Accroding to a former employee of the bank, "irrational lending, loose underwriting norms and ample liquidity" have been prime causatives.
Kotak Mahindra Bank has a total asset base of Rs37,439 crore, has 249 branches across 145 locations and 492 ATMs.
According to Sailav Kaji, director (institutional equities) at Fiduciary-Euromax Capital Markets Ltd, "Kotak is looking to expand. In the past couple of years, when others like Yes Bank Ltd were expanding aggressively, Kotak remained subdued. Citi has pumped in capital in the non-banking arm to absorb the losses."