BackCentrum faces multiple riders as it readies to take over PMC
The RBI said the Centrum group will have to transfer its stake in the proposed bank to a non-operative financial holding company (NOFHC) within three and a half years from the date of receiving the nod
PremiumMUMBAI : The Reserve Bank of India has placed multiple riders while approving Centrum Financial Services and BharatPe’s proposal to start a small finance bank for taking over crisis-ridden Punjab and Maharashtra Cooperative Bank (PMC Bank).
In its letter giving an in-principle approval, RBI said the Centrum group will have to transfer its stake in the proposed bank to a non-operative financial holding company (NOFHC) within three and a half years from the date of receiving the nod.
The group will also have to bring all other regulated entities under the NOFHC in the same period. It will comprise Centrum Housing Finance, Centrum Microcredit, Centrum Wealth, Centrum Broking, Centrum Insurance and Centrum Alternatives, according to the letter, a copy of which was reviewed by Mint.
RBI said that as long as Centrum holds a majority stake in Centrum Housing Finance and Centrum Microcredit, the new SFB won’t be allowed to do home loan and microcredit business.
“As per the regulations, no two entities can do the same kind of business. Hence, Centrum will have to take a call on whether to sell stake in the subsidiaries or merge it with the SFB," said R. Gandhi, former deputy governor, RBI.
Suhail Sameer, group president at Bharat Pe, said the new SFB will focus on merchant loans, SME loans and other retail loan products “The SFB will not do housing or corporate loans as we intend to give loans in the range ₹50,000 to ₹10 lakh to merchants, kirana store owners and retail customers ," he said.
Centrum and BharatPe, in February, jointly proposed to take over PMC Bank. Centrum Financial Services is a step-down unit of listed entity Centrum Capital and provides credit to small and medium-sized firms ranging from ₹2 lakh to ₹2 crore. Resilient Innovations Pvt. Ltd, which operates BharatPe, a fintech platform, will be an equal partner in the SFB.
The Centrum-BharatPe JV was the only one among three to make the cut in taking over PMC Bank last year. While RBI was initially not very keen to give the licence to Centrum, it changed its stance considering the plight of PMC Bank’s depositors, said two people aware of the matter, requesting anonymity.
That said, RBI has given few relaxations to the proposed SFB, given the complexity of the structure. The letter stated that both Centrum and BharatPe will get eight years to dilute their stake to 40% or below and 10%, respectively, of paid-up capital. Under existing SFB norms, promoters are allowed up to five years to pare stake to below 40%.
Centrum will also get six years for a public listing of the SFB, contrary to existing rules which prescribe a public offering for an SFB within three years after reaching a net worth of ₹500 crore.
Under the resolution scheme, all depositors of PMC Bank will receive a maximum of ₹5 lakh from the Depositor Insurance and Credit Guarantee Corp. immediately. The remaining deposit amount will likely be converted into a 10-year bond at 1% interest, according to the two people cited above
“While RBI has gone ahead with the deal, it remains to be seen how the Centrum-BharatPe venture is able to turn it around. The new entity will have to do aggressive recovery and business to ensure that it is able to stay afloat," said one of the two people cited above.
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