The multi-state cooperative lender was on the verge of collapse when the regulator seized it on September 24, 2019, capped cash withdrawals and launched an investigation into its accounting failures.

RBI said it has decided to give Centrum its in-principle approval to set up a small fundraising bank under the on-the-fly licensing standards. On-the-fly licensing refers to the regulator that grants banking licenses on an ongoing basis, rather than once over several years.

In February, Centrum Financial Services and BharatPe submitted a joint proposal to buy PMC Bank. Centrum Financial Services is a descendant subsidiary of listed entity Centrum Capital, and provides credit to small and medium-sized businesses ranging from ₹2 lakh to ₹2 crores. Resilient Innovations Pvt. Ltd, which operates BharatPe, will be an equal partner of the small finance bank.

“We are delighted that a new banking license is being issued to an NBFC after a hiatus of almost six years and would like to thank RBI for the opportunity and trust placed in us,” said Jaspal Bindra, executive chairman of Centrum Group, in a press release. declaration.

“During the first year, we commit to ₹900 crore of capital and that would be split equally between Centrum Group and BharatPe, ”Bindra said over the phone. “Then another ₹900 crore will be provided by the two partners as and when needed after the first year. We will start the bank with ₹500 crore the first day, and the rest ₹400 crore during the year, ”he said.

Ashneer Grover, Managing Director and Co-Founder of BharatPe, said he was excited about the opportunity to build a small, high-performing, technology-driven financial bank, serving the payment, investment and credit needs of underserved people.

RBI has stated that it will consider granting a license to start banking activities under Section 22 (1) of the Banking Regulation Act 1949, once it is satisfied that Centrum is was in compliance with the conditions set out in the approval in principle.

The new entity is due to be operational within the next 120 days and it is only when this is done that the RBI will draft a merger proposal with PMC Bank. The plan will then be sent to the government for approval and official notification. Under Article 45 of the Banking Regulation Act, only one bank can be merged with another and therefore the process will not start until after the small financing bank is established.

This approval in principle has been granted pursuant to the offer of Centrum Financial Services Ltd dated February 1 in response to the expression of interest notification dated November 3, 2020 issued by the Punjab and Maharashtra Co-operative Bank Ltd, Mumbai “, RBI mentioned.

The main difference between a universal bank and a small financing bank is the presence of certain loan conditions for the latter. While a universal bank can lend freely, a small financing bank must largely focus on priority sectors and small loans.

After seizing PMC Bank, RBI initially capped cash withdrawals at ₹1,000 per account for six months, which was gradually relaxed to ₹100,000 in June of last year.

PMC Bank had total deposits of ₹10,727.11 crore and total advances of ₹4,472.78 crore at March 31, 2020. Its gross non-performing assets amounted to ₹3,519 crore in FY20, compared to ₹315 crore in FY19, according to its website.

The RBI’s move is a relief for depositors at the cooperative bank, whose funds have been stranded for nearly two years now. They had taken legal action against the RBI and organized numerous protests outside the central bank offices, hoping that their voices would be heard.

Certainly, in the case of cooperative banks, the hands of RBI have been tied to some extent. Before the government granted more powers to the RBI in June 2020, cooperative banks were under the dual control of the central bank and the state or Union government.

The central bank had recognized in September last year that factors such as the huge losses suffered by PMC Bank which resulted in the erasure of all of its net worth and a sharp erosion of deposits, pose serious problems to find a viable stimulus plan.