The Reserve Bank of India on June 18 granted “in-principle” approval to Centrum Financial Services Limited to set up a small finance bank (SFB), paving the way for the entity to take over the crisis-ridden Punjab and Maharashtra Co-operative bank (PMC).
This “in-principle” 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 PMC Bank, the RBI said.
The approval is under the general “Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector” dated December 5, 2019, the RBI said.
"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," the RBI said.
With this, the path for resolution of the PMC Bank is clear and that brings good news for PMC Bank depositors.
Resilient Innovations Private Limited (BharatPe), one of India's fastest-growing fintech companies, will be an equal partner of Centrum in the take over of PMC Bank.
Commenting on the development, Jaspal Bindra, Executive Chairman, Centrum Group, said, “We are delighted that a new banking licence will be issued to a 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. With Centrum as our partner, we are confident that we can create a world-class institution that provides a differentiated and superlative experience to retail customers as well as small businesses,” added Ashneer Grover, CEO and co-founder, BharatPe.
In March, the RBI had said that the PMC Bank resolution process may take some more time given the financial conditions of the bank even though the bank has received binding offers from certain investors for its reconstruction.
The RBI and PMC Bank are engaging with prospective investors in order to secure best possible terms for the depositors and other stakeholders while ensuring long term viability of the reconstructed entity, the RBI said. Also, given the financial condition of the PMC Bank, the process is complex and is likely to take some more time, the central bank said.
Subsequently, the RBI had extended the period of directions imposed on the bank till June 30, 2021 from April 1, 2021. The RBI had superseded PMC Bank board in September, 2019 and appointed an administrator. In December, PMC Bank said it has received four Expression of Interests (EoIs) for investment/participation in its reconstruction.
According to the details of the proposal by the bank, the investor should bring in the capital required for enabling the bank to achieve the minimum required capital to risk weighted assets ratio (CRAR) of 9 per cent.
As on March 31, 2020, PMC Bank had total deposits of Rs 10,727.12 crore, total advances of Rs 4,472.78 crore and gross NPA of Rs 3,518.89 crore. The share capital of the bank is Rs 292.94 crore. 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.
The RBI superseded PMC Bank board in September 2019. About 70 percent of its total loan book of Rs 8,383 crore as on March 31, 2019, had been taken by real estate firm HDIL. The bank had Rs 11,600 crore in deposits. The police arrested Joy Thomas, former managing director of the PMC Bank, in October. The investigators have since made a few more arrests.
During investigations, it was found that the bank had been allegedly running fraudulent transactions for several years to facilitate lending to HDIL through fictitious accounts and violating single-party lending rules. The RBI imposed restrictions on deposit withdrawals and superseded its board after the fraud was detected.
After the RBI took over the board of PMC Bank, deposit withdrawal restrictions were imposed on the bank (initially Rs 1,000 per account which was later increased to Rs 50,000). About 78 percent of the depositors have since been allowed to withdraw their deposits within the withdrawal limit of Rs 50,000.
Even though 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. While enhancing the withdrawal limit to Rs 1 lakh, the RBI had said that more than 84 percent of the depositors of the bank will be able to withdraw their entire account balance.