A consortium of fintech company BharatPe and Centrum Financial Services Ltd were issued license of a small finance bank by the RBI.
Small Finance Banks are financial institutions that cater to the banking needs of underserved and underprivileged sections of the society.
The Centrum Financial Services and BharatPe have taken over the Punjab and Maharashtra Co-operative Bank, along with its assets and liabilities.
The coming together of the two entities will provide an opportunity for them to evolve their business into a bank.
This also provides an opportunity to resolve the PMC Bank crisis. The main aim of the entity is to become India’s first Digital Bank.
The small finance banks and non-banking financial companies are collaborating with fintech companies to obtain and monetise the data collected by these consumer tech firms.
This is similar to buy-now-pay-later (BNPL) and the micro-lending models where creditworthiness of an existing customer is presented to the lender as a potential borrower.
BharatPe aims to offer its small and medium sized merchant customers a bank account and give them lending services based on their transactions.
In recent times, the borrowing rate has been very low. However, there are many small and medium sized borrowers who borrow at higher-than market rates.
These customers are not targeted by private or state-owned banks because their lending amount is miniscule and they do not have proper collateral.
The deposit rates of small finace banks will usually be higher to attract depositors but their lending rates will be good enough for getting borrowers.
The BNPL model is fast becoming attractive due to its policies. There are predictions that their market share could increase to 9% by 2024.