According to sources close to the development, IDBI Capital Markets had valued IDBI Home Finance at Rs 351 crore (Rs 3.51 billion) in late August. The base valuation was Rs 17.91 crore (Rs 179.1 million), resulting in a total valuation of Rs 261 crore (Rs 2.61 billion).

After factoring in the controlling stake premium and a premium for infrastructure, the total value was estimated at Rs 351 crore (Rs 3.51 billion).

In the wake of the changing market conditions, another exercise was undertaken in the first week of January and the base value was estimated at Rs 17 per share, translating into a valuation of Rs 247 crore (Rs 2.47 billlion). Factoring in the premium, the total valuation was Rs 333 crore (Rs 3.33 billion).

The offer of Dewan Housing Finance, which is the highest bidder, is around Rs 22 crore (Rs 220 million) lower than the latest value assigned to the company and around Rs 40 crore (Rs 400 million) less than the original valuation.

The bid evaluation committee has recommended that the board approve the sale to Dewan Housing Finance as in the absence of the transaction, IDBI Bank will have to infuse around Rs 70 crore (Rs 700 million) in its housing finance subsidiary to meet the stipulated 12 per cent capital adequacy ratio.

The sources also said that apart from issues related to valuation, the board also has to decide on how to deal with IDBI Bank and IDBI Home Finance's exposure to Dewan Housing Finance.

At the end of December 2008, IDBI Bank had sanctioned loan facilities of Rs 440 crore (Rs 4.40 billion) to Dewan Housing, of which Rs 340 crore was disbursed and the total amount outstanding was estimated at around Rs 290 crore (Rs 2.9 billion).

In addition, the bank had sanctioned around Rs 2,700 crore (Rs 27 billion) to its housing finance subsidiary, of which around Rs 2,200 crore has been disbursed and the outstanding is in the region of Rs 2,150 crore (Rs 21.50 billion).

If Dewan Housing's bid is accepted, the single company exposure limit of Rs 2,000 crore (Rs 20 billion) will be breached as IDBI Bank's total exposure to the two housing finance companies will be close to Rs 3,000 crore (Rs 30 billion).

Sources said that the bid evaluation committee is of the opinion that this problem can be sorted out if the undisbursed Rs 600 crore (Rs 6 billion) is cancelled and the board can relax the single borrower exposure limit for the remaining amount.

In addition, a section within the government is also of the opinion that IDBI Bank needs to take the Centre's approval for the sale, though Finance Secretary Arun Ramanathan is on the bank's board.

If the sale goes through, the bank may also find it tough to meet the priority sector lending target from the next financial year, sources said. The mandated 40 per cent exposure to priority sectors includes agriculture, small and medium enterprises and home loans up to a specified value.

While three companies submitted final bids, there were four other players - Edelweiss Capital, Kishore Biyani's Future Group, and private equity player New Silk Route and Carlyle India Advisors, which had proposed to bid through Repco Housing that participated in data room visits.