Unity Small Finance Bank plans to reduce former Punjab and Maharashtra Co-operative (PMC) Bank’s loan portfolio by around ₹800 crore even as it focuses on growing its micro-finance loan portfolio and MSMEs (micro, small and medium enterprises).
Scam-hit PMC Bank loans, totaling around ₹800 crore, are now part of Unity SFB’s loan portfolio following the former’s merger with the latter, effective January 25.
Unity SFB is promoted by Centrum Financial Services Ltd (Centrum) with Resilient Innovations Pvt Ltd (BharatPe) as a co-investor.
Jaspal Bindra, Executive Chairman of Centrum Group, said, “Our loan portfolio including PMC Bank’s good book of around ₹700-800 crore in the form of home loans, motorbike loans and some businesses, is now around ₹2,700 crore. . Obviously, we cannot add the bad book of PMC Bank, which is very large. About 70% of our loan portfolio, made up of equal parts microloans and SME loans, comes from Centrum.
In an interaction with Activity areaBindra observed that PMC Bank’s loan portfolio will be reduced to zero because that is not the business Unity SFB wants to do.
PMC Bank loan portfolio
“PMC Bank’s portfolio includes wholesale real estate loans, urban real estate loans and loans granted at an interest rate of 7 to 8%. Our financing cost is higher than that. We cannot support this. So as the loans come due, we will reduce that book.
“If we could sell the PMC Bank loans prematurely, we would. But somehow it’s not in our destination model to have the PMC Bank loans,” he said.
Bindra noted that the bank will continue to expand microfinance and SME lending and add new digital retail businesses. “The customers who do business with us, even the PMC Bank depositors that we have retained, are for many SME customers. So there’s a more logical cross-sell to that,” he said.
Building trust as a new bank
Asked about the effort required by a new bank to establish trust and accountability, Bindra pointed out that for every bank, it is an ongoing effort to retain depositors and onboard new depositors.
“And, I think, there are two or three elements to that. There are depositors looking at the property. If it is a government bank, it is considered safe. Depositors also look at scale. If it is a large private sector bank, the perception is that nothing can go wrong and the money is safe,” Bindra explained.
He pointed out that with the increase of the deposit insurance limit by five times to ₹5 lakh, the risk profile is the same, as deposits up to this limit are guaranteed by the Deposit Insurance Credit Guarantee Corporation. (DIGCC).
“So as long as you know the bank pays its insurance premium and is covered by the DICGC scheme, it doesn’t matter if the first ₹5 lakh is saved with Unity SFB or SBI,” Bindra said.
A family of four can keep almost ₹80 lakh in a bank by placing deposits of ₹5 lakh in different name permutations. Since deposit insurance of up to ₹5 lakh is available, depositors can only look at the price (interest rate).
July 13, 2022