NEW DELHI: The Reserve Bank of India (RBI) on Friday gave in-principle approval to Centrum-BharatPe consortium to set up a small finance bank, paving way for the joint entity to rescue the crisis-ridden Punjab and Maharashtra Co-operative (PMC) bank.
Both Centrum Financial Services Limited and BharatPe, who will be equal partners of the proposed bank, will infuse combined capital of Rs.900 crore in the first year of operation.
"With this, a new banking license will be issued to a NBFC (non-banking financial company) after a gap of nearly six years. We plan to bring Rs.1,800 crore of capital, which would be equally divided between Centrum Group and BharatPe, half of which will be brought in the first year. We will be starting the bank with Rs. 500 crore on day one," said Centrum Group executive chairman Jaspal Bindra.
To be sure, the new investors should ideally bring in capital required for enabling the bank to achieve the minimum required capital to risk-weighted assets ratio of 9 per cent. Later, they may explore the option of restructuring a part of deposit liabilities into capital/capital instruments.
Bharat Pe and Centrum Group are among four groups that have made the submissions to the RBI for the acquisition of scam-hit PMC Bank. The in-principle approval gave the Centrum-BharatPe consortium four months' time to commence the business.
Thereafter, the RBI will place in public domain a draft scheme of amalgamation of PMC Bank with the new small finance bank. The banking regulator, however, said it would consider granting a licence for commencement of banking business under the Banking Regulation Act, 1949, only after being satisfied that the applicant has complied with the requisite conditions laid down by RBI as part of "in-principle" approval.
While Centrum intends to look after the banking part of the business, three-year old fintech start-up BharatPe will bring in new-age products and help in digitisation process. "We are 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. With Centrum as our partner, we are confident that we can create a world-class institution that provides a differentiated and superlative experience to retail customers as well as small businesse," added BharatPe CEO and co-founder Ashneer Grover.
The start-up is also reportedly in advanced stages of talks to raise about $250 million in a new financing round led by Tiger Global. In September 2019, the central bank superseded the board and put restrictions on PMC Bank, including on cash withdrawals, after investigative agencies detected a fraud in the bank.
Cash withdrawals were capped at Rs. 1,000 per account for six months but gradually relaxed to Rs 1 lakh in June last year covering 84 per cent of the depositors. But, RBI refrained from raising the withdrawal limit beyond Rs 1 lakh, citing lack of liquidity as against a total deposit liability of 10,727 crore as on March 31, 2020 as a reason.
Liquid assets available with the PMC bank were to the tune of Rs 4,473 crore which is "insufficient" to fully pay all its depositors. Depositors, whose life savings are stuck in PMC) Bank for nearly two years, may heave a sigh of relief as the existing set of restrictions imposed by the regulator will expire at the end of this month.
However, large depositors may continue to face restrictions, at least for a few more months, to avoid a run on the bank. Post-merger, PMC Bank will become the first troubled multi-state urban cooperative bank to make a transition to small finance bank.