Centrum Group to Takeover PMC Bank

Diversified financial services player Centrum Group on Friday said it has received in-principle approval from the Reserve Bank of India (RBI) to take over the troubled cooperative lender PMC Bank and re-launch it as a small finance bank.

RBI Actions:
The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment/ equity participation for its reconstruction and had received four proposals.

In September 2019, the RBI had superseded the board of PMC and placed it under regulatory restrictions, including cap on withdrawals by its customers, after detection of certain financial irregularities, hiding and misreporting of loans given to real estate developer HDIL.

The restrictions have been extended several times since then. PMC's exposure to HDIL was over ₹6,500 crore or 73 percent of its total loan book size of ₹8,880 crores as of September 19, 2019.

Initially, the RBI had allowed depositors to withdraw ₹1,000 which was later raised to ₹1 lakh per account to mitigate their difficulties.

In June 2020, the RBI had extended the regulatory restrictions on the cooperative bank by another six months till December 22, 2020.

As of March 31, 2020, PMC Bank's total deposits stood at ₹10,727.12 crore and total advances at ₹4,472.78 crore. Gross non-performance assets of the bank stood at ₹3,518.89 crore at end-March, 2020.

Centrum Group Management Commentary:
Decision making at the new small finance bank equally promoted by Centrum Group and BharatPe will be determined by only those who are best suited to take those decisions, said Jaspal Bindra, executive chairman,

Centrum Group.
Centrum Group will take the charge in regulatory relations, lending, strategy and building the core business of the small finance bank. BharatPe will lead decision making on the technology side, including development of new digital-only products, as well as customer acquisition. 

Another area where BharatPe can help is in capital raising for the bank, since they have managed to raise good quality capital at an attractive valuation over the last three years.

The small finance bank is expected to be operational in less than 120 days, Bindra said.

To start with, the small finance bank aims to have a capital base of Rs 500 crore, against the regulatory requirement of Rs 200 crore. Equity capital will contributed equally by both promoters. Another Rs 400 crore in capital will be provided over the course of the first year of the bank's existence. "We (Centrum and BharatPe) have accounted for another Rs 900 crore to be infused into the bank aft fter the first year, depending on the kind of business growth we see," Bindra said. Centrum Financial Services' loan portfolio of about Rs 1,000 crore will be brought in to the small finance bank, as part of the process, he added.

So will the PMC depositors get their money back?Although the RBI has paved the way for a joint venture of Centrum and BharatPe to take over the troubled PMC Bank, the central bank has not come out with the details of the proposed acquisition of PMC Bank.

_{Disclaimer: The above report is compiled from information available on the public platforms.}
 

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