PremiumEnding nearly two anxious years for depositors, the Reserve Bank of India (RBI) on Friday cleared the decks for the takeover of Punjab and Maharashtra Cooperative Bank (PMC Bank) by a consortium of non-bank lender Centrum Financial Services and fintech startup BharatPe
Ending nearly two anxious years for depositors, the Reserve Bank of India (RBI) on Friday cleared the decks for the takeover of Punjab and Maharashtra Cooperative Bank (PMC Bank) by a consortium of non-bank lender Centrum Financial Services and fintech startup BharatPe.
The multi-state cooperative lender was on the brink of collapse when the regulator seized it on 24 September 2019, capped cash withdrawals and launched an investigation into its accounting lapses.
RBI said it has decided to grant in-principle approval to Centrum to set up a small finance bank under on-tap licensing norms. On-tap licensing refers to the regulator giving out bank licences on a continuous basis, 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 provides credit to small and mid-sized companies ranging from ₹2 lakh to ₹2 crore. Resilient Innovations Pvt. Ltd, which operates BharatPe, will be an equal partner in the small finance bank.
“We are delighted that a new banking licence 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," Jaspal Bindra, executive chairman, Centrum Group, said in a statement.
“In the first year, we are committed to bring 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 course of the year," he said.
Ashneer Grover, chief executive and co-founder, BharatPe, said it is delighted at the opportunity to build a high-performing technology-led small finance bank serving the payment, investment and credit needs of the under-served.
RBI said it would consider granting a licence for commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949, once it is satisfied that Centrum has complied with the conditions laid down as part of the in-principle approval.
The new entity has to be operational in the next 120 days and only when that is done, will the RBI draft a scheme on amalgamation with PMC Bank. The plan will then be sent to the government for approval and official notification. Under Section 45 of the Banking Regulation Act, only a bank can be merged with another and, therefore, the process will start only once the small finance bank is created.
“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 primary difference between a universal bank and a small finance bank is the presence of certain lending stipulations for the latter. While a universal bank can lend freely, a small finance bank has to largely focus on 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 gradually relaxed to ₹100,000 in June last year.
PMC Bank had total deposits of ₹10,727.11 crore and total advances of ₹4,472.78 crore as on 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 relief to depositors of the cooperative bank, whose funds have been stuck for close to two years now. They had moved court against the RBI and held numerous protests outside the central bank’s offices, hoping their voice would be heard.
To be sure, in the case of cooperative banks, RBI’s hands have been tied to some extent. Before the government granted more powers to RBI in June 2020, cooperative banks were under dual control of both the central bank and either the state or Union government.
The central bank had acknowledged in September last year that factors such as huge losses incurred by PMC Bank that led to its entire net worth getting wiped out and steep erosion in deposits, pose serious challenges in finding a workable revival plan.
