Mumbai based, Central bank of India is planning to sell its home finance arm in the next two months and is trying to raise the valuation of the mortgage company before selling it. Bank sources say that the bank has asked Ernst and Young for its advice on restructuring and valuation.

The bank has planned to first buy the shares of other shareholders in the home finance arm. According to a central bank executive, the bank has already started negotiations with other shareholders.

Central bank holds a 59.5 percent stake in the subsidiary while UTI and national housing bank (NHB) hold 16 percent each. The remaining 8.5 percent is with HUDCO.

The capital base of Centbank is Rs 20 crore while the net worth is Rs 48 crore. During 2008-09, the mortgage company posted a net profit of Rs 3.18 crore. Its gross outstanding loans were Rs 257.88 crore at the end of March.

The home finance company is planning to disburse loans worth Rs. 150 crore, which is, double the amount disbursed last year. It is also planning to increase the average loan size to Rs. 10-15 lakh from the current level of Rs. 3 lakh.

With a view to increase profitability of Centbank home, Central bank recently provided it a credit line of Rs 100 crore that would be partly used to repay the entire debt of NHB.

Most of the government-owned banks having separate home loan arms have divested or are in the process of divesting the business in order to avoid duplication since they themselves offer home loans. For instance, PNB sold 26 percent stake in its home loan arm, PNB housing finance to Dawnay Day. IDBI is also contemplating to sell its home loan arm.