Would like to build Unity Bank before IPO to create best value: Bindra

Centrum Group Chief Jaspal Bindra outlines unity bank's expansion strategy, universal bank ambitions and IPO timeline, alongside plans for portfolio diversification and capital strength

Jaspal Bindra, executive chairman, Centrum group, which holds 51 per cent in Unity Small Finance Bank, talk to Subrata Panda & Manojit Saha of the strategy for converting the bank into a universal bank. Edited excerpts:

 

Now that the Reserve Bank of India has approved one small finance bank’s transition into a universal bank, has the process become clearer for existing banks like yours?

 

The transition map was there from the start, but now we have seen one actual conversion happen. There are five criteria you have to meet. However, over and above that, there is a discretionary element. That was the opaque part. We still do not know the answer to that. Maybe size and diversification of books are of some relevance, and the geographical spread may also matter. At least now, we have a rough idea.

 

How have you incorporated the learning from observing other small finance banks?

 

We are latecomers, and hence we have the benefit of learning from others. We are clear that no single product will account for more than 25 per cent of our portfolio by the time we go for an initial public offering. We are very clear that our geographic spread will be national. We are not going to be limited to four, eight, or ten states, and no single state will account for more than 15 per cent — whether in terms of branches, business volumes, or overall exposure.

 

Which are the lines of business that you are betting on?

 

Our exposure to microfinance institutions (MFIs) was almost 35 per cent when we started. We have since brought it down to 20 per cent. That said, we believe we can be in any single business up to 25 per cent if the opportunity is attractive. At present, the MFI segment is tight and we are not planning to grow it; it is currently in reduction mode. However, if the market improves over the next 12 to 18 months, we do have some room. Today, our main line of business is loans to micro, small, and medium enterprises, where we offer both secured and unsecured products. Another business growing in size is commercial banking. Gold lending is operational in 30 branches of the country, and we plan to expand this to 100. This represents our immediate product spread. 

Would you enter the mortgage business? 

 

We will get into mortgages once we sell the housing finance company. The transaction has been closed but RBI approval is awaited. We are one of the bidders for Aviom Housing Finance and will pursue both routes — organic and inorganic. 

 

What is the IPO plan for the bank?

 

We would like to build the bank as much as possible before the IPO to create the best value. We are looking at a two-three year window.

 

Will Bharat Pe look to offload some stake before the IPO?

 

BharatPe has another three to four years before it is required to dilute its stake from 49 per cent to 10 per cent. So, it could choose to act earlier or wait until the IPO. They may start diluting gradually rather than leaving it until the very end. Last year, they were very keen, but then dropped the plan.

 

Do you have any say on who Bharat Pe sells its stake to? 

 

We have the right to clear names, meaning we have the right to ensure that any incoming partner is a fit and proper entity. BharatPe can sell up to 5 per cent in the bank to anyone, as no RBI approval is required for that. However, beyond 5 per cent, RBI approval is mandatory.

 

What is the status of your obligation to depositors in Punjab and Maharashtra Cooperative Bank?

 

It is essentially a 10-year plan to repay them, and we are on track. We paid ₹4,000 crore on day one. In addition, we have paid another ₹1,000 crore or so. Over the next two years, we have to pay a further ₹2,000 crore, and we are fully prepared for that. After this, there is a five-year moratorium, following which we have to pay the final amount, which will be around ₹3,000 crore. 

How many depositors have you been able to retain?

 

We have brought loans down to zero as we discontinued all the loan businesses the bank had. On the depositor side, we have retained 30-35 per cent. We paid ₹4,000 crore. Of that, we retained ₹1,200 crore-1,300 crore.