Centrum gets RBI's in-principle nod to take over PMC Bank via SFB route

Approval given in accordance with the offer made by Centrum to take over the beleaguered Punjab and Maharashtra Cooperative Bank

The Reserve Bank of India (RBI) has given “in-principle” approval to Centrum Financial Services Ltd (CFSL) to set up a small finance bank (SFB), which will take over the beleaguered Punjab and Maharashtra Cooperative Bank (PMC Bank).

Jaspal Bindra-led Centrum Capital, the holding entity for CFSL, and its partner BharatPe, a payments system company, will infuse Rs 1,800 crore into the small finance bank.

It will get 120 days to commence operations. The amalgamation with PMC Bank is a separate process that would involve a notification of the scheme by the government, said Bindra, executive chairman, Centrum Capital.

Centrum Capital is a BSE-listed entity and its shares closed 8.3 per cent higher at Rs 50.25 per share on the stock exchange.

Bindra said in the first year the partners would put in Rs 900 crore, which will be used for starting the business and acquiring PMC Bank. The second round of equity funding of Rs 900 crore will happen in the following year.

The “in-principle” approval has been given to Centrum in accordance with the offer it made in response to the expression of interest (EoI) to take over PMC Bank, the RBI said in a statement.

The consortium of Centrum and BharatPe had expressed an interest in taking over PMC Bank. According to reports, both Centrum and BharatPe will hold 50 per cent in the small finance bank and the assets and liabilities of the multistate cooperative bank will be transferred to it.

“BharatPe is 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,” said Ashneer Grover, chief executive officer and co-founder, BharatPe.

PMC Bank was placed under curbs in September 2019. Its administrator had floated an expression of interest on November 3, 2020, inviting investors for revival/reconstruction. Initially, four investors had shown an interest and three of them participated in further process.

In 2019-20, PMC Bank’s deposits stood at Rs 10,727.12 crore with advances at Rs 4,472.78 crore. The bank posted a net loss of Rs 6,835 crore with net worth at a negative Rs 5,850.61 crore.

The RBI had placed the bank under restrictions in 2019 following revelations of alleged irregularities in certain loan accounts.

On March 26, the RBI had extended the spell of curbs for three months beginning from April 1, 2021, to June 30, 2021. Given the financial condition of PMC Bank, the process is complex and is likely to take some more time. The process of reconstruction will start as soon as the objectives are achieved to the best possible extent, the RBI said.

Meanwhile, Centrum Capital is planning to raise equity capital through a rights issue or a private placement (including but not limited to a qualified institutional placement).

It will also look at raising up to Rs 1,000 crore through non-convertible debentures (NCDs). The board of Centrum Capital is meeting on June 22 to consider proposals for equity share and debentures issuance.