Unity Small Finance Bank Exploring Sale Of PMC Bank's Home Loan Book
PMC's housing loan book was worth about Rs 360 crore as of March 2022.
Nearly a year after an amalgamation scheme put Unity Small Finance Bank Ltd. in charge of the beleaguered Punjab & Maharashtra Cooperative Bank Ltd., the small finance lender is exploring a sale of the cooperative's home loan book.
"Unity Bank has received proposals to acquire PMC Bank’s Home Loan book. The proposals are being evaluated," a company spokesperson told BQ Prime.
The discussions are at an initial stage and they began after a counterparty approached Unity Small Finance Bank with the proposal, according to a person familiar with the matter.
PMC Bank's housing loan book had a size of about Rs 360 crore as of March 2022 and the segment reported a gross non-performing asset ratio of 17.5%, according to data in Unity Bank's FY22 financial results.
Unity Small Finance Bank is currently owned by a consortium of Centrum Financial Services and fintech BharatPe's parent, Resilient Innovations, with the latter holding 49%. Centrum Financial was granted a small finance bank licence by Reserve Bank of India in November 2021.
Promoted by Jaspal Bindra, the Centrum Group has an existing home loan business under Centrum Housing Finance Ltd., which had an unaudited asset size of Rs 780 crore at close of FY23's first half, according to a December 2022 credit rating report from Care Edge. Since the RBI rules limit the same backers from running two competing business, the remaining alternative would be either merge PMC's loan book with Centrum Housing Finance or sell it to a third party.
While there are multiple factors that inform such a scale, typically they are taken for capital allocation purposes, according to Asutosh Mishra, lead banking analyst at Ashika Broking. If someone feels they'll need capital down the road, they could explore such a sale, he added.
"You could deploy that money raised into something else, such as in a better quality credit pool," Amit Khurana, head of equities at Dolat Capital, told BQ Prime.
"Unity Bank’s loan book growth is driven by our business banking (MSME or Small Business Loans) and our inclusive banking (micro finance) businesses. Very soon we will add new retail digital lending products," Unity's spokesperson said.
PMC Bank’s book, on the other hand, comprised primarily of wholesale, real estate loans and home loans. The wholesale loan book will be run down as they mature, the spokesperson added.
As part of the amalgamation scheme, institutional depositors at PMC Bank are also slated to receive preference shares (80%) and equity share warrants (20%) in place of their eligible deposits.
The shares and warrants are yet to delivered to the depositors, according to Dipika Sahani, the coordinator of PMC Bank Account Holders Forum.
"Equity warrants will be given to institutional depositors in January 2023. This is in accordance with the amalgamation scheme," Unity's spokesperson told BQ Prime.
Arm's Length
Although Unity counts BharatPe among its investors, it seems to be maintaining a distance from given the upheaval ongoing at the company.
Unity Bank "may choose to enter into lending arrangements with BharatPe’s merchants. However such an arrangement, if any will be conducted at arm's length and will not be on an exclusive basis for either side," the bank's spokesperson said.
So far, Unity Bank has credited approximately Rs 4,000 crore into the accounts of erstwhile PMC Bank depositors as part of the first tranche settlement, the spokesperson said.
Retail depositors, having balances above Rs 5 lakh, will continue to receive payouts across several portions for which the next tranche will be released in January 2023, the spokesperson said.