PMC Bank gets some cooperative support, but revival to take time

The takeover of this bankrupt urban cooperative bank by the Centrum-BharatPe combine marks the first instance of NBFCs, high-net worth individuals and fintechs being allowed entry in this space

It’s unlikely you will come across a banker like Jaspal Singh Bindra. He has worn many turbans: A standout corporate banker who went on to head Standard Chartered Bank’s India franchise; later, he became group executive director and chief executive officer for Asia Pacific. As an entrepreneur, he picked up a 20 per cent stake in the Mumbai-based Centrum Group in 2016. His latest avatar is as turnaround artiste for PMC Bank (Punjab and Maharashtra Co-operative Bank), which went bankrupt after over-exposure to a single real estate company came to light in 2019. Ask him what he did on hearing of the central bank’s approval: “Nothing out of the ordinary. I informed my senior colleagues of it,” he deadpanned.

Bindra’s partner in the foray is an outsider to the world of high-finance: Ashneer Grover, co-founder and boss of BharatPe, the New Delhi-based fintech with a valuation of $900-odd million. He is more effusive. In the run-up to the official announcement, Grover — now holidaying in the United States — told this writer: “The point is: Will both Sachin Bansal (of Flipkart fame) and Ashneer Grover — both from IIT Delhi, though 17 years apart — bag a bank?” Bansal’s Chaitanya India Fin Credit is an applicant for a universal banking licence. Grover is ahead of Bansal on banking ambitions. News of the deal must have been an antidote for Grover after he could not make it to the World Test championship now on at Southa­mpton’s Rose Bowl owing to pandemic-related travel restrictions. BharatPe is a sponsor of ICC’s events.

PMC Bank is new territory not only for Bindra and Grover but also for the Reserve Bank of India (RBI). For the route to pick up the pieces after PMC Bank fell apart is unique.

This takeover marks the first instance of a new set of players — non-banking financial companies, high-net worth individuals and fintechs — being allowed entry into the urban-cooperative bank (UCB) space. This comes even as the banking regulator is chiselling a new regime after its Internal Working Group’s (IWG) report made a case for corporate ownership of banks.

There is a nuance here as well. It’s not that the Centrum-BharatPe combine is “taking over PMC Bank” in the standard sense of the term. The RBI has only granted an “in-principle” approval to Centrum Financial Services and BharatPe to set up a small finance bank (SFB) under its “on-tap” route. This has been accorded following Centrum’s offer of February 1, 2021, in response to PMC Bank’s November notification inviting “Expressions of Interest”. Both the central bank and North Block still have to iron out the finer aspects of the amalgamation of the beleaguered bank with the new SFB licence holder. Of course, this is not to suggest that PMC Bank will slip out of the grasp of Centrum-BharatPe.

It has also brought into relief the 2015 R Gandhi Committee view that a business size of Rs 20,000 crore can be considered as threshold for the voluntary conversion of multi-state UCBs into commercial banks — to ensure uniform regulation. Whether building upon the broad theme set by the committee or owing to the blowout at PMC Bank, the RBI in 2019 brought UCBs with assets of Rs 500 crore and above under the Central Repository of Information on Large Credits reporting framework. These banks were also brought under the ambit of the prompt corrective action (PCA) architecture. It was made mandatory for UCBs with deposits of Rs 100 crore to set up a board for management with the board of directors carrying out the due diligence for their appointment.

What of the broad contours of the interest for PMC Bank? The suitors are to infuse Rs 1,800 crore capital. This is six times the minimum capital required for new SFBs set at Rs 300 crore. It signals that investors will not get an easy pass to take over weak banks — whatever their hues. It’s just incidental that in the case of PMC Bank, the higher levels of capitalisation is not to only clear the mess within, but pencils in the impact of Covid-19 on its financials. The distribution of moratorium sought by micro, small and medium enterprises indicates that UCBs bore the brunt of the pandemic-induced lockdown, though this was also true of SFBs in the case of individual loans — a fact the RBI highlighted in its Report on Trend and Progress of Banking in India (2019-20).

A deal for PMC Bank marks a paradigm shift for the sector, which has been hampered in its efforts to access capital and technology and continues to be plagued by poor corporate governance. The RBI has been aligning UCB regulation with that of mainstream banks, and has done away with dual regulation with state governments making these banks relatively more attractive for those with banking ambitions.

The PMC Bank transaction is the first after the amendment to the Banking Regulation Act (1949) came into force for UCBs with effect from June 29, 2020. The provisions amended by the Act include Section 3, Section 45 and Section 56 of the principal Act. The amendment of Section 45 enables the central bank to reconstruct, or amalgamate a bank, with or without implementing a moratorium, with central government approval. The word “reconstruction” has been given wider connotation to include mergers, acquisitions and takeovers or demergers.

So, what of PMC Bank going ahead? There will be a rebranding; and a new CEO from within Centrum (BharatPe will bring in capital as partner and the technology) will take charge. It will be a brand new entity for all practical purposes. And in all the headlines, the one who escaped the limelight was RBI Governor Shaktikanta Das, who was the Sherpa.