After almost two years, crisis-ridden Punjab and Maharashtra Co-operative (PMC) Bank is set to get back on its feet after the Reserve Bank of India (RBI) on June 18 granted in-principle approval to Centrum Financial Services to set up a small finance bank (SFB). Centrum has partnered with fintech startup BharatPe to convert into a bank and then amalgamate itself into PMC Bank.
Jaspal Bindra, Executive Chairman, Centrum Group, will be instrumental in how the new entity bank shapes up and cleans up the mess that PMC Bank left behind. He is also keen on making the most of the technological edge that BharatPe will bring.
In an interview to Moneycontrol on June 20, Bindra, who wants to hit the ground running, says the focus will be on the micro, small and medium enterprise (MSME) loans now sitting on the books of the two companies. There will be no wholesale lending and while launching new products, they would ensure they are wholly digital. Edited excerpts:
What made you bid for PMC Bank?
The single largest reason is to have a deposit franchise of our own. As you know, the arbitrage model of the NBFCs has come under some strain since IL&FS (Infrastructure Leasing & Financial Services). Anyway, when I came into Centrum five years ago, our stated aim was always to end up as a licensed entity, as in, a bank. In that sense, it was anyway where we wanted to go directionally but the need for it became even more acute, given the NBFC growth potential has become a little strained now, compared to where it was when we started in 2016-17.
What is your message for PMC Bank’s depositors?
Honestly, we are not in a good position to give a message right now. We are unable to give a message only because the actual PMC resolution will come through a Section 45 scheme, which will have to be approved and notified by the Government of India. What permutation or combination they will choose, we don’t know yet. So, it is premature. All we are saying and the assurance we are able to give you as well is that whatever the notification has, we will honour and deliver to that.
What are the next steps?
The RBI will prepare and submit that notification only post our bank being operational. Under Section 45, what happens is that they can only take up a proposal for the amalgamation of PMC with another bank. The LVB thing (Lakshmi Vilas Bank’s amalgamation with DBS Bank India) happened quickly because both sides were banks.
In our case, we don’t have a bank. So only when the bank gets operational with the business that we transfer from Centrum and BharatPe can we draft the scheme, get it approved, open it for public domain for comments, then notify it through the gazette and then do the amalgamation. So closer to that time, we can give you a better sense of how things will be done.
Also read: RBI in-principle nod for Centrum: PMC Bank depositors relieved, but ask by when will they get their money back
Will the bank be up and running in 120 days?
Yes, 120 days is what we have been given. Obviously, from our point of view, we want to do it as soon as possible, and we need not necessarily take all the 120 days that are available. I think after that things will move quickly because everybody’s interest lies in moving things fast on that front.
Also read: PMC Bank resolution | Bank will be up and running by 2021 Q4: BharatPe co-founder Ashneer Grover
What will be the focus in terms of products for the new entity?
The products that Centrum Financial, the NBFC, have will be transferred. These are largely in the MSME category. BharatPe also finances small businesses and their specific niche is kirana shops. Those will be the two big MSME businesses that will be transferred into the bank. Then when the amalgamation of PMC happens, the PMC asset book will also come into the bank. But, that’s largely a wholesale book. It’s a run-down book and we have no plans to grow the wholesale side of the business.
Then we will initiate some new lines but all the lines we initiate will be only those that lend themselves 100 percent to digital. We are not planning to do anything new which is brick-and-mortar. But, what we have, to the extent it is brick-and-mortar, we will run it the way it is.
So, you will not expand in the physical format beyond the Mumbai region?
Yes and no. On the asset side, we want to basically not expand at all in terms of physical presence but for deposits, we will continue to make physical branches because many sections of society still look for a physical engagement with a branch. Most of our branches will be largely deposit-gathering branches.
Given BharatPe’s digital capabilities, you expect those to play in apart from their asset book?
Yes, 100 percent. The understanding is that the Centrum NBFC business will move to the bank in toto. We are doing a slump sale. In BharatPe’s case, there is no transfer of entities like that but basically every business that they do today and they do in the future, which can be done in the bank legally, we will do in the bank. The first preference of every business will be the bank, and things that we cannot do in the bank, such as Centrum’s broking business, will be kept outside.
PMC Bank has a high share of NPAs. How are you going to approach them?
There is some amount of collateral against those loans, but they will obviously be insufficient to meet the entire claim of the bank. We will want to do a much more aggressive collection and recovery effort than we believe has happened so far. That adds to the bottomline, so we have a very real incentive to do that.
If you look back at PMC, the management was in connivance with the borrower who was in default. So it’s easy to understand why they wouldn’t enforce the recovery effort aggressively. We don’t have that compulsion now, so we’ll hopefully do better. But, these are things we’ll know only once we do a thorough study and review of the documents, collateral, etc.
The PMC Bank brand had a community-based character. Would you retain that or reposition the brand as a more pan-India, consumer-facing franchise?
By definition, we would want to make it pan-India and very consumer-focused. So it will probably become a much wider audience than the concentrated one, as it is now.
What are the capital raising plans?
Yes, we will source the capital internally not only in the first year. We’ve underwritten Rs 1,800 crore and we expect that will take us through at least the first two, if not three years. So we don’t think we’ll be requiring any new capital in the bank in the next two-three years. That is why we have underwritten a large amount, even though the requirement is only Rs 200 crore and that is what was asked of us by the RBI.
We have voluntarily underwritten more because we think there will be a good organic opportunity as also inorganic opportunities in today’s marketplace.
How do plan to prevent an exodus of depositors from the bank?
We won’t be surprised, because there’s a trust deficit between the depositors and PMC, that there are a lot of people who would want to move away from the old PMC franchise. We are obviously going to open ourselves to depositors beyond the existing PMC depositor base. Hopefully, with them we will start on a clean slate on the strength of our own reputation and track record.
With the PMC depositors, in particular, we will work very hard to win their goodwill. We’ll be very happy to get whatever retention we can from there. We’ll work doubly hard to retain as many as we can from the PMC side, but even for people who don’t stay, we’ll understand because they’ve gone through a difficult phase.