Unity Small Finance Bank promoters likely to dilute stake to raise up to $150 million: Sources

Unity Small Finance Bank shareholders likely to divest stake to raise up to $150 million

The promoters of Unity Small Finance Bank - fintech player BharatPe and Centrum group - are looking to dilute their stake in Unity Small Finance Bank (SFB) to raise as much as $130-150 million, sources aware of the development told Moneycontrol.

BharatPe is likely to pare its shareholding in the bank to around 25-26 percent, the sources added.

It is also likely that, as part of the stake sale, the bank may raise some primary capital, they said. Centrum group is not looking to sell any stake, sources said.

Unity SFB declined to comment on the development.

“Any speculation around BharatPe selling its stake in Unity Bank is false. We strongly deny this and urge the media to not go by unsubstantiated rumours,” a BharatPe spokesperson said in an email response.

BharatPe owns 49 percent in Unity SFB. The Jaspal Bindra-led Centrum group owns the remaining 51 percent stake.

A formal stake sale process is expected to be initiated soon and talks to appoint an investment bank for the stake sale are currently on. The stake sale will be subject to the Reserve Bank of India’s (RBI) approval.

“The fintech company is looking to raise funds for its growth plans, especially for its lending business Trillion Loans, ” one of the sources said.

BharatPe acquired a majority stake in Mumbai-based non-banking financial company Trillion Loans in May 2023, in an effort to boost its lending business.

BharatPe has been working on scripting a turnaround since founder Ashneer Grover fell from grace after charges of financial misappropriation. Grover was removed from his leadership position in March 2022.

In November 2023, BharatPe said that it had turned profitable after five years of operations. It said that it turned EBITDA-positive in October 2023 and recorded an annualised revenue of Rs 1,500 crore on the back of a significant growth in its lending and payments business.

PMC Revival

The SFB was set up in 2021 as part of the RBI-approved revival plan for crisis-ridden Punjab and Maharashtra Co-operative (PMC) Bank, after two anxious years for PMC Bank depositors. Essentially, PMC was converted into Unity SFB as part of the restructuring process.

The multi-state PMC Bank was on the brink of collapse when the RBI took over the lender on September 24, 2019, and put a cap on cash withdrawals, while also launching an investigation into its accounting lapses.

The two partners, Centrum and BharatPe, had committed to bring in fresh equity of Rs 1,800 crore into the bank, with Rs 900 crore coming in the first year of operations.

PMC Bank had total deposits of Rs 10,727.11 crore and total advances of Rs 4,472.78 crore, as on March 31, 2020. Its gross non-performing assets were at Rs 3,519 crore in FY20, up from Rs 315 crore in FY19.

Unity’s numbers

For fiscal year 2023-24, Unity reported a net interest income (NII) of Rs 981 crore, growing by 75 percent over the NII of Rs 560 crore in the previous fiscal.

The bank’s net profit for FY24 stood at Rs 439 crore, as against a profit of only Rs 35 crore in the previous financial year.

The bank’s lending business primarily comprises microfinance  loans, MSME loans and supply-chain finance.

“New products, such as Micro LAP (loan against property), Digital Business Loans, Social Infrastructure Finance for Education & Healthcare were introduced,” the bank said in a statement, announcing its financial results for FY24.

“Additionally, 46 branches and 110 ATMs were operationalised and the bank went live with its debit card,” the statement added.

The bank added that its mobile app will be rolled out in a closed user group mode initially to existing bank customers and its credit card business will undergo a pilot, with the introduction of several card variants.