It turns out that BharatPe needs to sell its stake (regardless of whether it wants to or not). To understand why, we need to rewind the clock a bit:
USFB got its SFB license on 12th October 2021. A few months later, on 25th January 2022, USFB took over the operations of distressed PMC Bank; it paid ~₹3,800 crore ($450M) for the same.
PMC Bank ran into some serious trouble in 2019 (former promoters were siphoning money)
USFB was a 49% || 51% JV between BharatPe and Centrum Group. Centrum also transferred its lending businesses into USFB’s ownership.
👍So far, the turnaround story has been decent:
(a) USFB generated ₹187 crore in profit for Q2 FY25
(b) Loan book was ~₹8,500 crore for FY23-24 v/s ₹4,700 crore for FY 22-23
(c) The bank now has ~₹9,235 crore in deposits
🧠Now, coming to why BharatPe & Centrum Group need to sell their stake in USFB (fast!):
(1) Per the SFB Laws published by RBI, a SFB needs to IPO within 5 years of commencing operations i.e. USFB needs to IPO by January 2027 (latest)
(2) Again, per the same SFB Laws, there are caps on shareholding in an SFB.
- A non-promoter entity cannot hold more than 10%
- A promoter entity needs to reduce ownership to 26% within 12 years of commencing operations
(3) Now, it is quite likely that BharatPe (which itself is looking to list) would not wish to be the promoter of another company, hence, it would need to sell a sizeable stake in the next 2-3 years.
📊A conservative estimate for valuing a SFB is ~1.25x Price to Book ratio (PB) i.e. USFB could fetch a ~₹10,000 crore valuation (i.e. ~$1.25bn at the higher end).
Of course, finding a buyer for 25% to 50% of this business (i.e. someone willing to pay $250M to $500M *and* take ownership) will NOT be easy!
➡️ Nonetheless, small depositors in PMC Bank were the largest beneficiaries of USFB taking PMC over. Fingers crossed that USFB is able to find a long term owner (soon!)
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