Small Finance Bank License to Centrum and BharatPe by RBI

The Reserve Bank of India issued a small finance bank license to Centrum Financial Services Limited and Resilient Innovations Private Limited, also known as BharatPe. Both the companies will join hands to launch a bank called ‘Unity Small Finance Bank’. The two financial institutions will form a bank for the first time.

While Centrum Financial services would be holding a stake of 50.1%, BharatPe would hold a 49.1% share in formation of the new bank. Also, this is the first time in six years that RBI has given a banking license to any institution. The newly formed bank will now take over the assets and liabilities of Punjab and Maharashtra bank.

RBI gave an ‘in-principle’ approval to Centrum Financial Services about setting up a small financial bank. It made sure they and BharatPe took over the debt ridden Punjab and Maharashtra Co-operative bank. Also, Centrum’s MSME and micro finance business would be integrated into the newly constituted Unity Small Finance Bank. 

Centrum was founded in 1997 and has various fee businesses and lending platform for entities and persons. Its services include Pension Funds, Indian Mutual Funds, Investment Banking, Mid Corporate & Small Medium Enterprises credit and broking (FIIs).

Furthermore, it provides MSME credit, Wealth Management Services, Affordable Housing finance in tier two & three cities, Micro Finance loans and Retail Broking. It also has an Asset Management business that offers funds in Private Debt and Venture Capital.

BharatPe was founded by the duo of Shashvat Nakrani and Ashveer Grover in 2018. It gave India’s first UPI interoperable QR code, first ZERO MDR payment acceptance service and first UPI payment backed merchant cash advance service.

In 2020 after the COVID lockdown, the company also started India’s only ZERO MDR card acceptance terminals – BharatSwipe. As of now, BharatPe has garnered around US$ 178 million in equity and debt.

What are Small Finance Banks?

Small finance banks are a variety of niche banks in India. They can give basic banking services like lending money and acceptance of deposits. The goal behind the opening of these banks is to ensure the financial inclusion of those sections of the economy that are not penetrated by other financial institutions.

It includes small farmers, micro and small industries, mini business units and unorganized sectors. There are a few conditions that needs to be fulfilled before RBI gives a license to a company for opening a Small Finance bank. It includes:

  • Only existing NBFC (Non-Banking Financial Corporations), Microfinance Institutions and local area banks can apply for a license of Small Finance Banks.
  • SFBs are formed as public limited companies in the private sector under the Companies Act 2013.
  • They are ruled by provisions of RBI Act 1934 and Banking Regulation Act 1949.
  • The institutions must be having a capital of 200 crores.
  • 75% of its credits should be in priority sector lending.
  • The promoters of the SFB must be having an experience of 10 years in Finance and Banking.
  • As per the definition of SEBI, Promoters should be ‘fit and proper’ to be eligible when it comes to promoting Small Financial Banks. The RBI evaluates the potential promoters ‘fit and proper’ status based on their previous track record of integrity and decent credentials. It also includes having financial stability in the last five years.

A minimum initial contribution of the promoter to the paid-up equity capital of any small finance bank should be at least 40 per cent. Furthermore, if the promoter’s shareholding in the bank is more than that of 40 per cent, that would be deducted to 40 per cent within a period of five years.

  • When the small finance bank reaches a net worth of 500 crores, listing its shares on the stock exchange would be compulsory within three years of getting that net worth. The small finance bank may also become an Authorized Dealer in the foreign exchange business as per its clients’ requirements.

Also, according to RBIs rate, all the SFBs need to maintain their Statutory Liquidity Ratio and Cash Reserve Ratio.

With these many rules and regulations, only 11 financial institutions were given the license to form a Small finance bank since independence. The Unity Small Finance bank will be the 12th such bank to be permitted to be an SFB.

SFBs would be given scheduled bank status as soon as they commence their operations and find suitable as Section 42 of the Reserve Bank of India Act, 1934.