The Reserve Bank of India on Tuesday granted a banking licence to Unity Small Finance Bank Ltd (USFBL), which was established jointly by the Centrum Financial Services Ltd (CFSL) and Resilient Innovations Private Limited (BharatPe), to carry on a SFB business in India.
RBI had accorded “in-principle” approval to CFSL, a wholly owned subsidiary of Centrum Capital, on June 18 to set up a small finance bank (SFB).
The approval was in specific pursuance to CFSL’s February 2021 offer in response to the scam-hit Punjab and Mahatashtra Co-operative (PMC) Bank’s November 2020 Expression of Interest (EoI) notification.
Aid PMC Bank
The grant of banking licence to USFBL sets the stage for RBI to place in the public domain a draft scheme of amalgamation of PMC Bank with the SFB. The last step will be the government’s sanction for the scheme.
This announcement should come as a relief to PMC Bank depositors who have been struggling to get their deposits back for more than two years amid the Covid-19 pandemic.
“It is the first time ever that two partners are uniting equally to build a bank. The proposed business model is one of collaboration and open architecture, uniting all its stakeholders to deliver a seamless digital experience,” Centrum and BharatPe said in a joint statement.
Centrum’s MSME and micro-finance businesses will be merged into USFBL.
Digital bank
Jaspal Bindra, Executive Chairman, Centrum Group, said, “We are delighted to receive the license and excited to partner with BharatPe to create this new age bank with a strong team. We aspire to be India’s first digital bank.”
Ashneer Grover, Co-Founder and Managing Director, BharatPe, said “We will work tirelessly and smartly to capture this opportunity and build India’s first truly digital bank ground up.”
With the establishment of USFBL, the number of SFBs in the country goes up to 12.
Meanwhile, BharatPe, in a separate statement, said Rajnish Kumar, former Chairman of State Bank of India, has been appointed on its Board. He will also be the Chairman of the Board.
Kumar will be involved in defining the fintech company’s short-term and long-term strategy, and will also work closely with the other Board Members and CXOs on key business and regulatory initiatives, per the statement.
Centrum Financial Services Ltd (CFSL) has christened its proposed banking venture as Unity Small Finance Bank (SFB).
Unity SFB, which has its registered office in New Delhi, currently has three Directors — Jaspal Singh Bindra, Executive Chairman, Centrum Capital Ltd (CCL); Sriram Venkatasubramanian, CFO, CCL; and Ranjan Ghosh, MD & CEO, CFSL.
The SFB will eventually take over the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank. Currently, there are 11 SFBs in the country.
Revamp of operations
RBI had accorded “in-principle” approval to CFSL, which is a wholly-owned subsidiary of CCL, on June 18, 2021, to set up an SFB. This approval was in specific pursuance to CFSL’s February 2021 offer in response to PMC Bank’s November 2020 Expression of Interest (EoI) notification.
Under the “in-principle” approval, CFSL will first operationalise Unity SFB in 120 days. Thereafter, the RBI will place in public domain a draft scheme of amalgamation of PMC Bank with the SFB. The last step will be the government sanction for the scheme.
Mobile payments firm BharatPe is expected to be an equal partner in Unity SFB.
In the run-up to the formation of the SFB, CCL announced a restructuring of its operations, whereby its board approved the sale of the entire business of two wholly-owned material subsidiaries — CFSL and Centrum Microcredit Ltd — to its proposed step-down subsidiary (proposed SFB), subject to members’ and other requisite statutory and regulatory approvals.
Pooling of business of the aforementioned subsidiaries into the proposed SFB is required to be done as per the “in-principle” approval received from the RBI to set up the SFB, CCL said in an exchange filing on August 24.
The consideration for the sale of the entire business of CFSL and Centrum Microcredit to the proposed SFB is ₹316 crore and ₹110 crore, respectively, per the filing. This sale is subject to adjustments for any material change in financial status till effective date of the business transfer.
Centrum Financial Services Ltd (CFSL) has initiated the process of establishing a small finance bank (SFB), which will eventually take over the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank, by taking steps towards creating necessary infrastructure in this regard, according to the Reserve Bank of India (RBI).
The RBI had accorded “in-principle” approval to CFSL on June 18, 2021, to set up an SFB. This approval was in specific pursuance to CFSL’s offer in response to PMC Bank’s Expression of Interest (EoI) notification.
CFSL, which is a non-banking finance company, and Resilient Innovations Pvt Ltd (BharatPe), which is a fintech company, are equal partners in setting up the SFB.
Petition nixed
In an additional affidavit filed in the Delhi High Court in the Bejon Kumar Mishra (petitioner) versus Union of India & Others (Respondents) case, RBI said: “It is envisaged that Central government will be approached for approval and notification of a scheme of amalgamation of PMC Bank with the proposed SFB under Section 45 of the Banking Regulation Act after the proposed SFB starts functioning.” The RBI has sought the dismissal of the writ petition filed by Mishra
The central bank submitted that all efforts are underway to expedite the resolution of PMC Bank in the best possible manner and in the larger interest of all depositors of that Bank.
Mumbai-based PMC Bank was placed under All Inclusive Directions with effect from close of business on September 23, 2019, on account of major financial irregularities (fraud perpetrated by a real estate group), failure of internal control and systems of the bank and wrong/ under-reporting of its exposures under various off-site surveillance reports.
The bank has been under directions for close to two years now and depositors, especially senior citizens, have been finding it difficult to make ends meet.
Deposit withdrawal has been capped at ₹1 lakh per depositor during the entire period the bank is under directions.
The Reserve Bank of India (RBI) may have paved the way for the resolution of PMC Bank by granting an in-principle approval for small finance Bank (SFB) to Centrum Financial Services, but its executive chairman Jaspal Bindra says the business interest was not driven by PMC Bank alone. In an Interview with Ankur Mishra, he says the new bank is going to have all of the Centrum’s NBFC business, a good portion of BharatPe’s business, and PMC will also fold into the bank. He also says PMC Bank depositors will have to wait for clarity till the amalgamation scheme is finalised by the regulator. Excerpts:
What has been the reason for showing interest in PMC Bank?
We looked at it on a standalone basis and thought it (PMC Bank) is resolvable. We basically wanted to find a resolution which was better than liquidation for the lender. Our business interest was not driven by PMC Bank alone. We have looked at it as a bank which will also have PMC as a component. The new bank is going to have all of the Centrum’s NBFC business, a good portion of BharatPe’s business, and PMC will also fold into the bank. The reason for looking for a banking licence was to get a deposit franchise.
What was your proposal for the resolution of PMC Bank?
We are putting in some amount of capital. Now it is for RBI to draft a scheme and the government of India to approve it.
How much capital you are going to put into the new bank?
We have underwritten Rs 1,800 crore between partners (CFS and BharatPe), before we start diluting. Whether we dilute or not, Rs 1,800 crore is underwritten by us, of which Rs 500 crore will be there on Day one. Another Rs400 crore will be there within the first year, and other Rs900 crore will be available on tap from the partners. We will increase it as and when required depending on the growth of the business.
How will the procedure of acquiring PMC Bank work out?
Before we can amalgamate the PMC Bank, we will have to be an operational bank. Under Section 45 of the Banking Regulation Act, one can only prepare a merger scheme between two banks and therefore the process will start only once we have been converted into a bank. So, you need to necessarily become a bank first. Then an amalgamation scheme will be proposed to the government of India and then final notification will come after approvals.
How soon can we see small finance bank shaping up?
Our effort is to do as soon as possible, but there is some procedural time in terms of an EGM has to be called, and we have to incorporate our company. Some of these timelines are beyond our control. However, we are hoping to complete it as soon as possible. It will definitely happen within 120 days timeline.
You would have gone through the latest balance sheet of PMC Bank in detail. What are the immediate pain points and how you are going to deal with it?
In terms of pain points, there is a negative net worth and that is an issue in any financial institution. How I am going to deal with it? I cannot tell, because a lot of it will depend on what gets approved in the amalgamation scheme. So, the biggest pain point is the negative net worth which was created due to poor management and fraudulent transactions in the lending side. Otherwise, the bank was well known for good service. And that is what is really hurting depositors, because their money got misused.
What should PMC Bank depositors expect from new owners What is your intent to deal with depositors?
The intent is to start, we must get to a point which is better than liquidation. How much that will be dependent on the scheme.
Was there any discussion with RBI on PMC depositors?
Till this time, the clock was on standstill for PMC Bank depositors, and now at least the clock has started. Now, the question for depositors is when and how much they will be able to withdraw? I think after getting the licence we will be in position to discuss it with RBI.
How will you control PMC depositors moving out of the bank? What is the strategy there?
We will not want to stop PMC depositors. However, we will convince them that there is a new management and a new set-up. We will be able to manage things better. We will try that to an extent that is possible. However, one of the reasons we have been given licence is that if somebody calls for money, we will have to pay.
Is there any incentive you have planned for the depositors?
Over the next four months, we will be giving a thought to these kinds of things to create some incentives. Is there a way we can create some financial incentives? We will work on that. SFBs anyway pay higher than the market even today to depositors.
“We do not know how much amount existing PMC Bank depositors will be able to withdraw, but we want to allow them withdrawing as much as possible,” he further said.
By Ankur Mishra
Centrum Financial Services and BharatPe, will collectively infuse anywhere between Rs 500-3,000 crore capital in the small finance bank (SFB) as per requirement, according to BharatPe group president Suhail Sameer. In an interaction with FE, he said both the partners have agreed to put an equal amount in the bank which will start with Rs 500 crore capital. He also said a final call on PMC Bank depositors will be taken after the amalgamation scheme is prepared by the regulator.
“One thing was clear in our discussion with RBI that interest of depositors is supreme,” Sameer said. According to him the new owners want to allow PMC depositors to withdraw as much as possible from the bank. “We do not know how much amount existing PMC Bank depositors will be able to withdraw, but we want to allow them withdrawing as much as possible,” he further said.
Without sharing details of exact asset-liability mismatch in PMC Bank, Sameer said they have a plan in mind to tackle the same, which is yet to be approved by the regulator.
In the next 3-4 months, the focus for Centrum-BharatPe will be to make small finance bank (SFB) operational, after Reserve Bank of India (RBI) has granted in principle approval to set up SFB on Friday. Under Section 45 of the Banking Regulation Act one can only prepare a merger scheme between two banks and, therefore, the process will start only once SFB is set up. BharatPe expects to extend its existing relationship with its merchants by offering them savings and current accounts, along with banking and credit services.
“Initially high interest rates on deposits will be our pull factor, but overall we want to offer convenience to our customers,” Sameer said. With the kind of reach BharatPe has, mobilising deposits should not be an issue for our bank, he added.
BharatPe facilitates over Rs 200 crore of loans to its merchant partners every month through its NBFC partners. The company has deployed more than 50,000 point of sales (PoS) machines and enables transactions of more than Rs 900 crore per month on PoS machines. BharatPe has presence in 75 cities in the country.
The Reserve Bank of India (RBI) has recently announced its decision to grant ‘in-principle’ approval to Centrum Financial Services Limited (the applicant) to set up a small finance bank under general “Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector” dated December 5, 2019.
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.
This approval has been accorded in specific pursuance to Centrum Financial Services Limited’s offer dated February 1, 2021 in response to the Expression of Interest notification dated November 3, 2020, published by the Punjab & Maharashtra Co-operative Bank Ltd. in Mumbai.
The Fund Raising Committee of Centrum Capital Ltd (CCL) on Friday approved raising of funds up to ₹100 crore through issuance of Non-Convertible Debentures (NCDs).
The issuance of NCDs, which will be secured, redeemable, unlisted, unrated, principal protected market linked, will be in one or more tranches, for cash, at par or premium, in dematerialised form, on private placement basis, CCL said in a regulatory filing. Each NCD will have a face value of ₹1 lakh.
This NCD issuance is part of the in-principle approval accorded by CCL’s board of directors on June 25, 2020, for raising of funds through issuance of NCDs up to ₹1,000 crore in one or more series/ tranches, on private placement basis. Till date CCL has raised ₹196.62 crore via NCDs, the filing said.
CCL’s principal business activity is merchant / investment banking services. It is also a holding company, with shareholding in 10 subsidiaries, 4 step-down subsidiaries, an associate company and a joint venture.
As per CCL’s annual report, the company’s material subsidiaries are – Centrum Retail Services, Centrum Financial Services, Centrum Microcredit, Centrum Housing Finance, Centrum Wealth Management, and Centrum Broking.
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