Centrum-BharatPe, Liberty group in race for beleaguered PMC Bank

Deal could mark the entry of corporates into UCBs

Steel baron Sanjeev Gupta’s Liberty Group of the UK, the Jaspal Singh Bindra-led Centrum group and BharatPe combine, and two business families from Mumbai and Hyderabad have expressed interest for beleaguered Punjab and Maharashtra Co-operative Bank (PMC Bank).

This is the first time that corporates, non-banking financial companies, and high-net-worth individuals have shown eagerness in taking over an urban-cooperative bank (UCB). The development comes a month after a Reserve Bank of India’s Internal Working Group report made a case for corporate ownership of banks.

“The winner for PMC Bank will continue to run it as an UCB. Automatic conversion of the UCB licence to that of an universal bank is ruled out,” said a source. Suitors for the bank comes as a relief for its depositors. 

Gupta is no stranger to banking. He owns two banks. The Commonwealth Trade Bank (CTB), part of his privately-held GFG Alliance, which was renamed after the acquisition of Diamond Bank UK (the British subsidiary of Diamond Bank of Nigeria). And, Wyelands Bank, the rebranded Tungsten Bank purchased in November 2016. The GFG Alliance has revenues above $20 billion while Liberty House’s primary interests are in steel and energy. 

In the case of Centrum Group, it has partnered with BharatPe, “hoping to deepen its business partnership with the fintech player, given the importance of digital payments going ahead”, said a source. BharatPe, founded by Ashneer Grover and Shashvat Nakrani in 2018, raised $75 million (Rs 535 crore) from private equity firm Coatue in a Series C funding round earlier this year along with existing investor Ribbit Capital. This was over and above the $50 million in the Series B round in August last year. The start-up enables offline merchants to accept digital payments through third-party UPI apps.

While the identity of the two business families in the fray for PMC Bank from Mumbai and Hyderabad could not be ascertained, the former is said to have “interests in textiles”.

It will be pertinent to recall the R Gandhi Committee’s (2015) view that a business size of Rs 20,000 crore can be considered for voluntary conversion of multi-state UCBs into commercial banks to ensure uniform regulation. “This business size is appropriate as the biggest UCB should not end up being the smallest commercial bank. Further, a proper transition period should be provided to UCBs for conversion into commercial banks,” the committee had observed.

PMC Bank’s 2018-19 annual report shows deposits at Rs 11,617.3 crore with assets at Rs 8,383.3 crore, or a total business of Rs 20,000.7 crore. 

Earlier this year, Saraswat and Cosmos co-operative banks had plans to seek the RBI’s nod to convert into commercial lenders. Their total business was a tad more than Rs 60,000 crore and Rs 26,000 crore, respectively.

Sources said a deal for PMC Bank will mark a paradigm shift for the sector, which has been hampered in its efforts to access capital and technology and continues to be plagued by poor corporate governance. “The RBI has been aligning UCB regulation with that of mainstream banks, and done away with dual regulation, making these banks relatively more attractive for those with banking ambitions,” said a senior banker.

In 2019, the RBI said that UCBs with assets of ₹500 crore and above will be brought under the Central Repository of Information on Large Credits reporting framework. These banks were also bought under the ambit of the prompt corrective action framework. And, in a far-reaching move, it was made mandatory for UCBs with deposits of Rs 100 crore to set up a board for management, with the board of directors carrying out the due-diligence for their appointment.

The RBI’s latest data shows that the number of UCBs — scheduled and non-scheduled — came down to 1,544 in 2018-19 from 1,926 in 2003-04. During this period, mergers were the maximum among Maharashtra-based UCBs at 73, followed by those in Gujarat at 33.

According to the RBI’s Financial Stability Report of July 2020, the performance of 54 scheduled UCBs remained stable between September 2019 and March 2020. Their capital adequacy ratio remained at 9.8 per cent for both the quarters. Their gross non-performing assets fell to 9.9 per cent from 10.5 per cent; the provision coverage ratios rose to 61.4 per cent from 40.9 per cent during this period. The return on assets improved to negative 1.8 per cent from negative 3.6 per cent, while the liquidity coverage ratio remained stable at 34 per cent.

PMC Bank had invited expressions of interest (EoIs) from investors for equity participation for its reconstruction. The last date for submission for EoIs was December 15. The bank has informed the RBI that four proposals have been received and the bank would need some more time to undertake the process. Accordingly, the bank will continue to be under sub-section (1) of Section 35A read with Section 56 of the Banking Regulation Act (1949) until end of March 2021, an extension from December 22, 2020.