RBI Paves The Way For PMC Bank Rescue By BharatPe-Centrum

RBI has approved a small finance bank license for Centrum Financial, following its bid for PMC Bank.

A signage bearing the name of PMC Bank. (Source: PTI)
A signage bearing the name of PMC Bank. (Source: PTI)

The Reserve Bank of India, on Friday, paved the way for a rescue of Punjab & Maharashtra Cooperative Bank, more than 18 months after the lender was put under restrictions.

In a statement, the banking regulator said that it has given in-principle approval to Centrum Financial Services to set up a small finance bank.

The in-principle approval was given after Centrum Financial Services, in partnership with Bharat Pe, submitted an expression of interest for PMC Bank.

This “in-principle” approval has been accorded in specific pursuance to the 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., Mumbai.
RBI Press Release

According to two people in the know, the small finance bank license will enable the bidders to take over the multistate cooperative's franchise.

As part of the plan, the assets and liabilities of PMC Bank will then be transferred to the small finance bank, the people quoted above said.

While BharatPe's small business lending portfolio may continue to run outside the small finance bank, the loan assets under Centrum Financial Services are likely to be merged with the new entity, one of the people quoted above said.

A new banking license will be issued to a NBFC after a gap of nearly six years, said Jaspal Bindra, executive chairman of. Centrum Group in a press release. "We are excited to partner with BharatPe to create this new age bank, with a strong team,” he said. The technology-led small finance bank will serve the payment, investment and credit needs of the under-served, Ashneer Grover, co-founder of Bharat Pe said in the release.

As of March 31, 2020, the latest data available, PMC Bank had a deposit base of Rs 10,727 crore and loans worth Rs 4,473 crore.

PMC Bank was placed under restrictions after serious irregularities in the bank’s functioning emerged. In a confession letter to the RBI, the bank’s MD Joy Thomas had said that the lender extended loans worth over Rs 6,500 crore to HDIL in violation of the RBI’s large exposure norms. Even though HDIL had defaulted on its outstanding loans to the bank, the cooperative lender had failed to recognise it as non-performing. The bank was also found to have created false accounts in order to manage the fraudulent lending.

Last month, BloombergQuint had reported that the banking regulator had been working with the BharatPe-Centrum consortium to take over PMC Bank's assets, as a lone option. Other bidders who had shown interest, including Liberty House UK, had dropped out of the race.

BloombergQuint had reported that retail depositors of PMC Bank will be able to access their deposits as they could before, once the deal goes through. However, those with large deposit bases will likely face some initial restrictions to avoid a run on the bank.

At present, withdrawals of up to Rs 1 lakh per depositor are permitted, which would cover 84% of the bank’s depositors in full. The current set of restrictions imposed by the RBI are set to expire at the end of June.