In September 2019, Punjab and Maharashtra Co-operative Bank (PMC Bank) met with its sad fate by becoming the single largest lender to HDIL (Housing Development and Infrastructure Ltd) that accounted for 75 percent of its loans. HDIL’s failure to pay the loans resulted in the collapse of PMC Bank that led RBI to intervene by approving Centrum Financial Services Limited and BharatPe to take over the cash-strapped bank to form a small finance bank.
The joint venture between Centrum and BharatPe will infuse a total of Rs 1800 crores which will be equally divided between the two entities out of which Rs 900 crores will be invested in the first half of the year and the bank will commence its operation with a value of Rs 500 crore from day one.
There is nothing unusual about the collapse and taking over of a bank, but what is rare about the deal is a three-year-old fintech company taking the reins of a beleaguered bank to become its half owner.
BharatPe-A Three-Year-Old fintech company winning a rare banking license
BharatPe a fintech platform enabling Indian merchants and small business owners to accept digital payments, was eyeing to receive an NBFC license for a long time. The collapse of the PMC Bank was a shot in the arm for BharatPe as it first submitted its nomination along with Centrum to RBI for becoming potential bidders to take over the bank and earn a banking license. BharatPe aspires to join the Unicorn club with its ongoing talks with Tiger-Global for an E-Series funding of $250 million required for opening a new-age bank. This takeover is beneficial for BharatPe as it presents the opportunity of raising deposits and public deposits that is supposedly the cheapest source of capital for lending. It also lowers the cost of capital from a lending perspective.
The joint venture between Centrum and BharatPe will infuse a total of Rs 1800 crores which will be equally divided between the two entities out of which Rs 900 crores will be invested in the first half of the year
What Services BharatPe is expected to Provide in the New Bank?
This small finance bank intends to aim at the underserved markets of India. Small and medium enterprises in India have limited to zero financial infrastructure thus, forcing them to rely on personal relationships with wholesalers for credit. Centrum the owner of the other half offers investment banking solutions to mid-corporates and SME lending, broking for institutions and retail. It also provides MSME credit, wealth management, affordable housing, and micro-lending, apart from private debt and venture capital. Both entities complement each other as they serve the same target audience. BharatPe working jointly with Centrum will introduce new-age fintech products catering to the payment, investment, and credit needs of the retailers and small businesses.
Learnings for start-ups aspiring to hold ownership in banks or have a lending license
With more than 50 lakh merchants using BharatPe and manifold transactions up to 7 times till March 2021, it could have become a unicorn start-up with ease as no investors would have denied signing cheques. But BharatPe believes that it is a three-year-old company that has numerous milestones to achieve and does not want to be seen as a fintech company whose offerings are similar or product USPs blurring with fintech majors such as Paytm, PhonePe or Razorpay. Rather than following the unicorn suit it decided to foray into the banking vertical thus clinching the first movers’ advantage to offer its fintech services to a traditional co-operative bank and giving it a digital makeover.