Citigroup eyeing HDFC and HDFC Bank post 2009?

Citigroup's buyout of 9.27 per cent of the HDFC stake from Standard Life for over Rs 3,000 crore may have significant ramifications for the Indian banking industry post the promised liberalisation after 2009. It is no secret that overseas banks, especially US-based banks, are keen on acquisitions in India. The US government has been urging the Indian government to open up the Indian financial services sector further, for quite some time now.

For Citigroup, a sizeable stake in one of the largest home mortgage companies in the country makes good sense. After the stake acquisition, Citi would become the single largest shareholder in HDFC and would have a nominee on its board.

Citigroup held a 3.59 per cent stake in HDFC as on 31 March 2006 though Citigroup Global Market, Mauritius.

Foreign investors, other than Citigroup Global Market, held more than 64 per cent of HDFC as of 31 March 2006. Most of these overseas investors are financial investors who may not have any strategic interests in holding on to their investments. They may be willing to sell out at a future date at the right price.

Domestic institutional investors, including mutual funds, held only around 6 per cent of HDFC as on 31 March, 2006. Hence, Citi will not have much difficulty in acquiring a controlling stake in HDFC as and when RBI allows such acquisitions. Based on the current roadmap of RBI, acquisitions by foreign banks will be allowed after 2009.

HDFC also holds 22 per cent of HDFC Bank, the second-largest private sector bank in the country. Consequently, if RBI permits it, Citigroup may be looking at a grand acquisition and merger of both HDFC and HDFC Bank with its Indian operations after 2009.