Punjab & Maharashtra Cooperative Bank (PMC), which has been hit by a scam and had the Reserve Bank of India halting its normal banking activities for the past 18 months, has finally found a rescuer.

The takeover of PMC Bank has received clear direction with the RBI on Friday granting in-principle approval to Centrum Financial Services, the NBFC arm of Centrum group, to set up a small finance bank.

BharatPe, a fintech company, will be an equal stake partner in the small finance bank. Assets and liabilities of the crisis-ridden PMC Bank will be transferred to the SFB.

The SFB will be guided by the directions and timelines of the RBI on the amalgamation of PMC Bank.

PMC Bank depositors, however, will not get their dues immediately. Centrum and BharatPe will first set up the SFB within 120 days. The RBI will then prepare a draft proposal for the merger of PMC Bank.

After the bank’s financial irregularities and lending malpractices came to light, the RBI had imposed withdrawal limitations on depositors. The current withdrawal limit is Rs 1 lakh per depositor. This was initially capped by the RBI at Rs 1,000 to stem the flight of deposits. The new management will have to put the interest of depositors in their top priority list.

Centrum Group along with three-year-old QR code-based payment app Bharat Pe had submitted a joint expression of interest (EoI) to the RBI to collectively acquire PMC Bank. Being under the RBI restrictions for a long time, PMC Bank will get into full banking operations after the new suitors fit in the conditions set by the RBI.

Said Centrum Group executive chairman Jaspal Bindra, “A new banking licence will be issued to a non-banking financial company (NBFC) after a gap of nearly six years. We would like to thank the RBI for the opportunity and confidence shown in us. We are excited to partner with BharatPe to create this new age bank, with a strong team.”

Centrum and BharatPe will together infuse $250-300 million into the bank within the next two years.

Centrum is planning to raise equity capital through rights issue or a private placement (including but not limited to a qualified institutional placement) in accordance with the provisions of applicable laws. It will look to raise up to Rs 1,000 crore through non-convertible debentures (NCDs).

Said BharatPe CEO and co-founder Ashneer Grover, “We are delighted at the opportunity to build a high-performing technology-led SFB serving the payment, investment and credit needs of the under-served. With Centrum as our partner, we are confident that we can create a world-class institution that provides a differentiated and superlative experience to retail customers as well as small businesses.”

As of 31 March 2020, PMC Bank's total deposits stood at Rs 10,727.12 crore and advances at Rs 4,472.78 crore. The bank reported a net loss of Rs 6,835 crore and has a negative net worth of Rs 5,850.61 crore. The gross NPA stood at Rs 3,518.89 crore.

“The RBI has today decided to grant in-principle approval to Centrum Financial Services Ltd (the applicant) to set up a small finance bank under the general ‘Guidelines for ‘on tap’ Licensing of Small Finance Banks in the private sector dated 5 December 2019. The RBI would consider granting a licence for commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949, on being satisfied that the applicant has complied with the requisite conditions laid down by RBI as part of in principle approval,” the central bank said.

The in-principle approval has been accorded in specific pursuance to the Centrum Financial Services’ offer dated 1 February 2021, in response to the EoI notification dated 3 November 2020, published by the Punjab & Maharashtra Co-operative Bank Ltd, Mumbai, the RBI added.

In September 2019, the RBI superseded the board of PMC Bank and imposed restrictions on it following financial irregularities in the bank, including under-reporting of bad loans and mis-reporting of loans given to real estate developer HDIL. The then head of the bank had written a letter in detail to the RBI, describing the relation of HDIL’s promoter family Wadhawan with PMC Bank, and how both sides helped each other.

PMC's exposure to HDIL was over Rs 6,500 crore or 73% of its total loan book size of Rs 8,880 crore as of 19 September 2019.

RBI had curbed all activities of PMC Bank and appointed an administrator for the next six months, besides limiting withdrawals from customers' accounts. Initially, the RBI had allowed depositors to withdraw Rs 1,000, which was later raised to Rs 1 lakh per account to mitigate their difficulties. The restrictions were set to expire on 30 June 2021.