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Centrum-BharatPe to infuse over $250 million equity in PMC Bank over 2 years, target SFB to be fully operational by end-FY22

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"BharatPe and Centrum will together infuse $250 million-plus equity into the bank within the next two years," Ashneer Grover told CNBC-TV18.

Centrum Financial Services and BharatPe are working closely with the regulator to firm up the scheme of the takeover of crisis-rid Punjab & Maharashtra Co-operative (PMC) Bank within a week, and hope to make it the "most digitised bank India has ever seen," Ashneer Grover, the co-founder, and CEO of BharatPe told CNBC-TV18 in an interview on Friday.
Grover spoke to CNBC-TV18 hours after the Reserve Bank of India (RBI) granted "in-principle" approval to Centrum Financial Services Ltd to set up a small finance bank under general Guidelines for 'on tap' Licensing of Small Finance Banks. Centrum Group and BharatPe have jointly bid for PMC Bank.
"We have today got an LOI (Letter of Intent) from RBI, granting us an in-principal nod for a Small Finance Bank licence. This is the first step towards the eventual takeover of PMC Bank. Between us and Centrum, RBI has found the promoters ‘fit & proper' to run a bank," Grover said.
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"We are working closely with RBI on a detailed takeover scheme. It should be completed over the next three to four months, and we look forward to getting the bank up and running as soon as possible," he added.
The BharatPe CEO said he expects the deal to close over a period of three to four months, and hopes that the small finance bank will be fully operational by the fourth quarter of the current financial year.
Grover detailed the consortium’s plans to takeover PMC Bank. BharatPe and Centrum Group will first set up an entity with an equal stake between both partners. The joint entity will operate like the small finance bank, and PMC Bank will get merged into it, Grover said.
"Even existing businesses of Centrum will get merged into the small finance bank. BharatPe's standalone business will remain a separate entity," he said.
"Will build the business together with Centrum Group. Centrum's Jasapal Bindra brings with him a wealth of experience in banking. We are clear that Centrum Group will lead the banking part of the business. And BharatPe will proactively build new age products for the bank and also digitise it. So we will actively build and roll out new products for the bank. We want to make sure this is the most digitized bank India has seen so far," Grover told CNBC-TV18.
"Centrum Group has three NBFCs. The eventual idea is to have everything under a single umbrella. So we will work closely with RBI to ensure that business that can be merged into the bank is merged into the bank," the BharatPe CEO said in the interview. BharatPe will hold a 50 percent stake in the entity as its subsidiary.
"We have committed a certain (assets under management) growth to RBI, which is built on a conservative and doable estimate," he said, without divulging any financial targets.
To be sure, converting into a small finance bank will also require the promoters to meet the regulatory criteria on the minimum capital adequacy of 9 percent, while also bringing in enough capital to get the business going.
"BharatPe and Centrum will together infuse $250 million-plus equity into the bank within the next two years," Grover told CNBC-TV18, "Depositors are our priority number one. As part of the scheme, making sure depositors can access their money is our top priority."
With the current increased withdrawal limit of Rs 1 lakh per depositor, RBI had earlier said more than 84 percent of the depositors will be able to withdraw their entire account balance. But that still leaves many with their lifelong savings stuck in the cooperative bank. Grover said they would be taken care of on priority.
Centrum Group, in an emailed statement, quoted Jaspal Bindra, executive chairman of Centrum Group as saying, "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."
As of March 31, 2020, PMC Bank had total deposits of Rs 10,727.12 crore, total advances of Rs 4,472.78 crore, and a gross NPA of Rs 3,518.89 crore.
The RBI had superseded the board of PMC Bank in September 2019 after a shocking fraud came to light. About 70 percent of its total loan book of Rs 8,383 crore as of March 31, 2019, had been taken by real estate firm HDIL. PMC allegedly made more than 21,000 fictitious accounts to hide loans it made to HDIL.

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