BharatPe: How the payments startup won a rare banking licence in India

 Reserve Bank of India rewards the company and its partner, Jaspal Bindra, for agreeing to help revive Punjab & Maharashtra Co-operative Bank.

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 last year. 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.