Centrum or nothing. This was probably the dilemma the Reserve Bank of India (RBI) faced before deciding to grant ‘in-principle’ approval to Centrum Financial Services (CFSL) to set up a small finance bank (SFB) so that it rescues the scam-hit Punjab & Maharashtra Co-operative (PMC) Bank.
While two other entities —UK-based Liberty Group and Ideal Group —also showed interest in taking over PMC Bank in response to its Expression of Interest (EOI) floated in November 2020, CFSL made the cut as it was the only player with experience in the financial services space.
RBI bet on CFSL notwithstanding the fact that its parent Centrum Capital’s consolidated net loss widened to ₹36 crore in the nine months-ended December 31, 2020, against ₹24 crore in the year ago period. The company made a net profit of ₹71.57 lakh in FY20.
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Fintech company BharatPe, which is among the top UPI P2M players with an 8.8 per cent market share as in March 2021, will be CFSL’s equal partner in floating the SFB, which will acquire PMC Bank.
Banking expert V Viswanathan said RBI could have tried the “Swiss Challenge” method for the proposed amalgamation/merger of PMC Bank, giving an opportunity to other non-banking finance companies to better CFSL’s bid.
As per PMC Bank’s EOI, the investors can explore the option of restructuring a part of deposit liabilities into capital/capital instruments and the SFB may also approach the Deposit Insurance and Credit Guarantee Corporation (DICGC) for its support for payment up to ₹5 lakh (insured deposits) to depositors.
“No plan B”
“Probably there was no Plan B. So, they had to make Plan A (inviting bids and zeroing-in on the successful bidder) work as depositors were suffering for the last 20 months due to the deposit withdrawal cap amid the pandemic,” said a depositor.
Viswanathan said depositors with deposits up to ₹5 lakh are likely to get their money fast as DICGC may settle their claim first. For deposits of individuals above ₹5 lakh, there could be a phased withdrawal plan. For non-individuals, probably, a portion can be withdrawn in phases and another portion could be converted into tier-I/ tier-II capital.
Among non-individuals holding deposits with PMC Bank, there are urban co-operative banks, two RBI employees’ co-operative credit societies, housing societies, and Gurudwaras.