Citigroup to cut stake in HDFC under Basel III norms

Citigroup Inc is set to cut its stake in Housing Development Finance Corp (HDFC) to below 10 per cent in order to be compliant with proposed Basel III regulations, several reports said.

The move, expected to be announced today, is to avoid the burden of additional capital and liquidity requirements under the new norms regulations.

Basel III, a new global regulatory standard on bank capital adequacy, asks lenders to keep higher capital buffers to absorb potential financial stress. Banks with investments in financial institutions also need to set aside additional capital as a prudential requirement.

According to an agreement reached among most central banks around the globe, bank investments which exceed 10 per cent of the issued share capital of unconsolidated financial institutions, mortgage servicing rights and deferred tax assets, are subject to deduction from Tier-I capital of a bank.

Citigroup is currently the single largest institutional shareholder in HDFC. As of 31 March, it held 11.38 per cent in India's largest mortgage lender through two units.

The two sources declined to comment on the price of the deal, which was set after Indian stock markets closed on Monday. The share sale is expected to be executed at the start of trading on Tuesday.

The estimated size of the stake that Citigroup plans to reduce is $260-300 million and the transaction may happen as early as tomorrow, one report said.

Citigroup Global Markets Mauritius had earlier sold around 74,000 HDFC shares at Rs2,700-2,900 per share through block deals. In August 2010, HDFC had announced a five-for-one stock split to enhance liquidity in its shares.