Unity Small Finance Bank plans to run down the erstwhile Punjab and Maharashtra Co-operative (PMC) Bank’s loan book of about ₹800 crore even as it focuses on growing its micro finance and MSME (micro, small and medium enterprises) loan portfolio.
Scam-hit PMC Bank’s loans, aggregating about ₹800 crore, are now part of Unity SFB’s loan portfolio following amalgamation of the former with the latter, effective January 25.
Unity SFB is promoted by Centrum Financial Services Ltd (Centrum) with Resilient Innovations Pvt Ltd (BharatPe) as a joint investor.
Jaspal Bindra, Executive Chairman, Centrum Group, said: “Our loan book, including PMC Bank’s good book of about ₹700-800 crore in the form of home loans, two-wheeler loans and some corporate loans, is now about ₹2,700 crore. Obviously, we can’t add PMC Bank’s bad book, which is very big. About 70 per cent of our loan book, comprising micro finance and SME loans in equal proportion, has come from Centrum.”
In an interaction with BusinessLine, Bindra observed that PMC Bank’s loan book will be run down to zero because that is not the business Unity SFB wants to do.
PMC Bank’s loan portfolio
“PMC Bank’s book comprises wholesale, real estate loans, urban home loans and loans given at 7-8 per cent interest. Our cost of funding is higher than that. We cannot support that. So, as the loans mature, we will run that book down.
“If we can sell PMC Bank’s loans prematurely, we would do so. But one way or the other, it is not in our destination model to have PMC Bank’s loans,” he said.
Bindra noted that the bank will continue to grow the micro finance and SME loans and add new retail digital businesses. “The clientele that deals with us, even PMC Bank depositors whom we have retained, many of them are SME clients. So, there is more logical cross-sell to that,” he said.
Building trust as a new bank
To a question on the effort required by a new bank to build trust and liabilities, Bindra underscored that for every bank it is an ongoing effort to retain depositors and onboard new depositors.
“And, I think, there are two-three elements to that. There are depositors who look at ownership. If it is a Government Bank, it is considered safe. Depositors also look at scale. If it is a large private sector bank, the perception is that nothing can go wrong, and the money is safe,” explained Bindra.
He emphasised that with the enhancement in the deposit insurance limit by five times to ₹5 lakh, the risk profile is the same, because deposits up to this limit are guaranteed by the Deposit Insurance Credit Guarantee Corporation (DICGC).
“So, as long as you know that the bank is paying its insurance premium and is covered under the DICGC scheme, it does not matter whether the first ₹5 lakh is saved with either Unity SFB or SBI,” Bindra said.
A family of four can keep almost ₹80 lakh in a bank by placing ₹5-lakh deposits in different name permutations. Since deposit insurance of up to ₹5 lakh is available, depositors can look only at price (interest rate).