PMC Bank Rescue: Wont Let Ego Dictate Decision Making At New Bank, Says Centrum’s Bindra

Decision making at the new small finance bank equally promoted by Centrum Group and BharatPe will be determined by only those who are best suited to take those decisions, said Jaspal Bindra, executive chairman, Centrum Group.

"We are partners in the true sense of the word. But we are not foolish enough to let egos take charge of decision making. Both partners will engage in decision making in areas where each excels," Bindra told BloombergQuint in an interview.

Centrum Group will take the charge in regulatory relations, lending, strategy and building the core business of the small finance bank. BharatPe will lead decision making on the technology side, including development of new digital-only products, as well as customer acquisition, Bindra said.

Another area where BharatPe can help is in capital raising for the bank, since they have managed to raise good quality capital at an attractive valuation over the last three years, Bindra said.

The Reserve Bank of India on Friday gave an in-principle nod to Centrum Financial Services to set up a small finance bank, after the non-bank lender bid for the beleaguered Punjab & Maharashtra Cooperative Bank. This new small finance bank will be an equal ownership joint venture with BharatPe.

The small finance bank is expected to be operational in less than 120 days, Bindra said.

"We need to register the company first and for that we need an approval from the EGM (extraordinary general meeting). There is a timeline to be followed for that," he said. "We also have various administrative processes which need to be completed. We aim to finish everything before the 120 day timeline."

• To start with, the small finance bank aims to have a capital base of Rs 500 crore, against the regulatory requirement of Rs 200 crore.
• Equity capital will contributed equally by both promoters.
• Another Rs 400 crore in capital will be provided over the course of the first year of the bank's existence.

"We (Centrum and BharatPe) have accounted for another Rs 900 crore to be infused into the bank after the first year, depending on the kind of business growth we see," Bindra said.

Centrum Financial Services' loan portfolio of about Rs 1,000 crore will be brought in to the small finance bank, as part of the process, he added.

An earlier photograph of depositors and investors gathered outside Bhandup Branch of the Punjab & Maharashtra Cooperative (PMC) Bank, in Mumbai.

The Road Ahead

Speaking about the depositors of PMC Bank, Bindra said that the scheme of amalgamation filed by RBI will provide clearer details on how the troubled bank's assets and liabilities will be absorbed by the new small finance bank.

"We are sure that the regulator and the government will introduce a method through which the depositors are not facing any major problems in accessing their money and the bank too does not end up facing problems," he said.

As part of the rescue plan though, Centrum and BharatPe have not sought any special liquidity assistance from the banking regulator. According to Bindra, the clean set of assets at PMC Bank which will be imported into the small finance bank are only in the range of about Rs 1,000 crore. The liabilities of the cooperative bank are much larger, which will accommodate some deposit outflow without triggering any liquidity concerns at the bank.

As of March 2020, PMC Bank had a loan book of Rs 4,473 crore and a deposit base of Rs 10,727 crore.

For almost two years, depositors of PMC Bank have faced RBI-imposed restrictions on withdrawals owing to the bank's weak financials and alleged management fraud.

At over RS 6,500 crore, PMC Bank 's loans to HDIL exceeded regulatory limits. Moreover, the poor quality of these loans was concealed to present a healthier balancesheet, according to a confession letter by then managing director Joy Thomas. Several top officials are suspected to have been involved in the alleged fraud.

The new small finance bank is unlikely to alter the branch-level staff strength at PMC Bank, Bindra said. For roles which require a more focused skill set, employees of Centrum Group, BharatPe, PMC Bank and candidates from the market will all be considered.

"Nobody at Centrum or BharatPe has been promised a job at the new bank. We will choose whoever is best suited for the job," Bindra said.

The two biggest challenges facing the small finance bank are time and trust, Bindra said. The timeframe available is short and quick decisions must be made without compromising on quality, he said.

"But when it comes to trust we have to remember that a customer is not going to get excited just because PMC Bank's ownership has changed. We are not Microsoft. We will have to perform and garner the trust of the existing customer base and the new customers in the future," Bindra said.