Centrum-BharatPe to take over PMC Bank
The RBI on Friday approved the acquisition of Punjab and Maharashtra Cooperative Bank by non-bank lender Centrum Financial Services and fintech startup BharatPe.
The multi-state cooperative lender was on the verge of collapse when the regulator took it over on 24 September 2019, limited cash withdrawals, and began a probe into its accounting errors.
RBI stated it has resolved to give in-principle permission to Centrum to establish a small finance bank under on-tap licensing standards. On-tap licensing refers to the regulator giving out bank licenses continuously, rather than once in several years.
In February, Centrum Financial Services and BharatPe had submitted a joint proposal to take over PMC Bank. Centrum Financial Services is a step-down subsidiary of listed entity Centrum Capital and grants credit to small and mid-sized companies ranging from ₹2 lakh to ₹2 crore. Resilient Innovations Pvt. Ltd, which runs BharatPe, will be an equal partner in the small finance bank.
In a statement, Jaspal Bindra, executive chairman, Centrum Group, said, “We are delighted that a new banking license will be issued to an NBFC after a gap of nearly six years and would like to thank RBI for the opportunity and confidence shown in us.”
“In the first year, we are committed to bringing in ₹900 crore of capital and this would be equally divided between Centrum Group and BharatPe,” Bindra said over the phone. “Then, an additional ₹900 crore will be brought in by the two partners as and when required after the first year. We will be starting the bank with ₹500 crore on day one, and the rest ₹400 crore during the year,” he added.
Ashneer Grover, chief executive and co-founder, BharatPe, said he is delighted at the opportunity to create a high-performing technology-led small finance bank catering to the payment, investment, and credit needs of the under-served.
RBI stated it would contemplate giving a license for starting of banking business under Section 22 (1) of the Banking Regulation Act, 1949, once it is convinced that Centrum has complied with the conditions laid down as part of the in-principle approval.
“This in-principle approval has been accorded in specific pursuance to the Centrum Financial Services Ltd’s offer dated 1 February in response to the expression of interest notification dated 3 November 2020 published by the Punjab and Maharashtra Co-operative Bank Ltd, Mumbai,” RBI said.
The main difference between a universal bank and a small finance bank is the presence of some lending conditions for the latter. While a universal bank can lend freely, a small finance bank has to mostly focus on the priority sector and small ticket loans.
After seizing PMC Bank, RBI initially capped cash withdrawals at ₹1,000 per account for six months, which was slowly eased to ₹100,000 in June last year.
PMC Bank had cumulative deposits of ₹10,727.11 crore and total advances of ₹4,472.78 crore as of 31 March 2020. Its gross non-performing assets were at ₹3,519 crore in FY20, up from ₹315 crore in FY19, according to its website.
The RBI move comes as a comfort to depositors of the cooperative bank, whose funds have been stuck for nearly two years now. They had moved court against the RBI and held several protests outside the central bank’s offices, expecting their voice would be heard.
The central bank had recognized in September last year that factors like huge losses incurred by PMC Bank that led to its entire net worth getting wiped out and steep depletion in deposits, present severe challenges in determining a workable recovery plan.
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