INSUBCONTINENT EXCLUSIVE:
BharatPe, a barely three-year-old payments startup, is going to be the half-owner of a bank in India - a prize that has eluded many of the
country's pedigreed tycoons.It's a lucky break
Even Jaspal Bindra, who'll own the other half, has had to wait six years for this chance, ever since his reign as the top Asia banker at
Standard Chartered Plc ended amid a heap of losses in India and Indonesia.The in-principle approval for BharatPe and Bindra is a marriage
made in heaven, or rather the capital-starved hell that has been the country's banking system for much of the past decade
The regulator is rewarding the duo for agreeing to help remove the debris of a scam-tainted small lender
Punjab - Maharashtra Co-operative Bank collapsed after it made 70%-plus of its loans to one bankrupt shantytown developer
To prevent a run, the Reserve Bank of India had to stop PMC depositors from freely accessing their money.That was in September 2019
After two years and two waves of a pandemic, the stuck savers finally have a resolution: BharatPe and a unit of Bindra's Centrum Capital Ltd
will put their financial businesses into a newly licensed bank tasked with making small-ticket loans to unbanked segments of the population
For the privilege of getting that license, the new lender will have to assume at least some of the liabilities of the troubled PMC, as well
its moth-eaten assets.It's unclear how much of the past baggage the new bank can be expected to carry
PMC's March 2020 deposit base of 107 billion rupees ($1.5 billion) may have shrunk after the RBI relaxed restrictions on withdrawals in June
But it doesn't have many good assets left to earn a return: About 80% of its 45 billion rupee loan book had gone bad by March last year
Depending on the deal the regulator strikes on their behalf, one option may be to sweeten PMC depositors' take - beyond what they'll be paid
out by the deposit guarantee corporation - with some equity in the new bank.Beyond that, it's a clean slate
BharatPe, which allows merchants to accept payments from any of the several apps popular with consumers, is yet to join the unicorn club of
startups with at least $1 billion in valuation
TechCrunch has reported a Tiger Global-led fundraising round that will take it comfortably past that hurdle
The money will also come in handy in creating a new-age bank
Gauging retailers' creditworthiness from real-time customer data, and making that the basis for pricing working capital loans, will preclude
the need for a costly physical branch network.Tens of millions of India's small retail shops rely on personal relationships with wholesalers
Bringing them under the ambit of formal lending will also draw them into the tax net, helping ease the resource crunch for a government that
has seen its debt explode because of the Covid-19 crisis
For Bindra, it's time to try something different from the old corporate banking model of financing empire-building by large conglomerates
In India, taking errant corporate debtors through a formal bankruptcy process or coming to a settlement with their politically influential
owners was always like pulling teeth
Of late, extraction of capital from failed businesses has become a painful joke - yielding recovery rates of 4% to 6% for creditors.In the
absence of a formal mechanism to deal with bank failures, expect more bespoke arrangements
Inviting Singapore's DBS Group Holdings Ltd
to take over the assets and liabilities of struggling Lakshmi Vilas Bank Ltd
offered a strong hint that the Indian central bank had learned its lesson from unsatisfactory half-rescue of Yes Bank Ltd., a major
corporate lender that was allowed to hobble along as a standalone lender.BharatPe's unexpected bonanza could well set a template for
post-Covid recapitalization of Indian lenders
The RBI responded to the pandemic by slashing interest rates and making available nearly 7% of GDP in easy liquidity
When that cheap money is eventually unwound, more banks with depleted capital coffers may need new homes
If RBI Governor Shaktikanta Das is going to reprise the anxious Mrs
Bennet from Pride and Prejudice, maybe other fintech suitors, too, will get to play Mr
Darcy.(Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services
He previously was a columnist for Reuters Breakingviews
He has also worked for the Straits Times, ET NOW and Bloomberg News.)Disclaimer: The opinions expressed within this article are the personal
The facts and opinions appearing in the article do not reflect the views of TheIndianSubcontinent and TheIndianSubcontinent does not assume
any responsibility or liability for the same.(Except for the headline, this story has not been edited by TheIndianSubcontinent staff and is
published from a syndicated feed.)
