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Centrum to takeover PMC Bank, partner BharatPe to launch SFB

The RBI in a statement said an in-principle approval was given after Centrum Financial Services submitted an expression of interest for PMC Bank.

By: ENS Economic Bureau | Mumbai |
June 19, 2021 2:17:51 am
A PMC Bank branch in Mumbai. The lender is under regulatory curbs. (File)

The Reserve Bank of India (RBI) on Friday granted “in-principle” approval to Centrum Financial Services Ltd to set up a small finance bank (SFB), paving the way for it to take over the scam-ridden Punjab and Maharashtra Co-operative Bank in a joint venture with digital payment firm BharatPe.

The RBI in a statement said an in-principle approval was given after Centrum Financial Services submitted an expression of interest for PMC Bank. “The RBI would consider granting a licence for commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949, on being satisfied that the applicant has complied with the requisite conditions laid down by RBI as part of in-principle approval,” it said.

Resilient Innovations Private Limited (BharatPe), one of India’s leading fintech companies, will be an equal partner in the SFB. “Starting off with existing capabilities of an NBFC and a fintech, active and potential customer base, digital reach and technology, should enable the SFB to scale up quickly,” Centrum said.

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 6 years and would like to thank the RBI for the opportunity and confidence shown in us. We are excited to partner with BharatPe to create this new age bank, with a strong team.”

“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,” said Ashneer Grover, CEO and co-founder, BharatPe.

As of March 2020, PMC Bank had a deposit base of Rs 10,727 crore and loans worth Rs 4,473 crore. The share capital of the bank is Rs 292.94 crore. However, the bank registered a net loss of Rs 6,835 crore during 2019-20 and has a negative net worth of Rs 5,850.61 crore.

PMC Bank is under regulatory restrictions after the RBI found out financial irregularities in its functioning, hiding and classification of loans given to Housing Development Infrastructure Ltd (HDIL). The bank has an exposure of over Rs 6,200 crore to HDIL. The RBI has superseded the board of the bank and appointed an administrator in September 2019.

Last year in November, the bank came out with an EoI (expression of interest) to identify a suitable equity investor/ group of investors willing to take over management control so as to revive the bank and commence its day-to-day operations. BharatPe and Centrum Group reportedly submitted a joint EoI to the RBI to collectively take over the troubled PMC Bank.

Four bidders had submitted EoIs for the takeover of PMC Bank.

When the RBI sacked the board of PMC Bank, it initially slapped a deposit withdrawal restriction of Rs 1,000 per account which was later increased to Rs 50,000. About 78 per cent of the depositors have since been allowed to withdraw their deposits within the withdrawal limit of Rs 50,000. While this limit was further enhanced to Rs 1 lakh in June last year, many depositors who have bigger amounts parked in the bank are still not able to get their money back. “We hope to get back our money stuck in PMC Bank with the Centrum takeover,” said a depositor.

In 2019, the Economic Offences Wing (EOW) of Mumbai police arrested PMC Bank’s former managing director Joy Thomas in connection with the fraud at the bank. The promoters of HDIL, Rakesh Wadhawan and Sarang Wadhawan, too, have been arrested and are currently in jail, facing money laundering charges.

Incidentally, the net-worth of all SFBs currently in operation is in excess of Rs 200 crore.

Centrum was founded by Chandir Gidwani and the late Khushrooh Byramjee. Founded in 1997, the Centrum group has diversified fee businesses and a lending platform for institutions and individuals. Institutional services include investment banking, mid-corporates and SME credit and broking. It also provides MSME credit, wealth management to the rich and family offices, affordable housing, and micro finance. It also offers funds across private debt and venture capital through its asset management business.

BharatPe, founded in late-2018, offers a finance platform to small merchants. In the same year 2018, it launched the first UPI interoperable QR code, first zero MDR payment acceptance service, and first UPI payment-backed merchant cash advance service.

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