Centrum And BharatPe’s Small Finance Bank Aims To Become A INR 40,000 Cr Lending Business In Next 5 Years

Earlier this week, the Reserve Bank of India issued a Small Finance Bank (SFB) license to the consortium of Centrum Financial Services Limited and Bharatpe’s parent Resilient Innovations.

The new SFB has been incorporated as ‘Unity Small Finance Bank’. According to Centrum Group’s Executive Chairman Jaspal Bindra and BharatPe cofounder Ashneer Grover, the new entity will aspire to be ‘India’s first digital bank’. 

SFBs are financial institutions that offer financial services to underserved and underbanked areas in the country. Unlike payments banks that can only accept demand deposits and hold up to INR 2 lakh per individual, SFBs can accept all types of deposits including fixed deposits, recurring deposits, savings and current accounts.

BharatPe had spoken about its banking intentions to inc42 earlier this year. At the time, BharatPe and Centrum Group had submitted a joint expression of interest (EoI) to the Reserve Bank of India along with Centrum Group. 

Founded in 2018 by Ashneer Grover and Shashvat Nakrani, BharatPe is a merchant payments startup that launched `India’s first interoperable UPI QR code’. The startup entered the unicorn club in August this year when it raised $370 Mn at a $2.85 Bn valuation.

The startup offers merchants a single platform to accept payments from different UPI applications like Google Pay, PhonePe etc. These payment services do not add much to the company’s bottom line due to the union government’s ‘zero merchant discount rate’; prompting the startup to aggressively branch into lending services.

Last year, an RBI panel had recommended relaxations for institutions that intend to convert to SFBs. Existing Non-Banking Finance Companies (NBFCs), Microfinance Institutions (MFIs), and Local Area Banks (LABs) can opt for conversion into small finance banks provided they fit certain criteria including a minimum paid-up capital requirement of INR 200 Cr. 

In a conversation with Inc42, BharatPe CEO Suhail Sameer spoke about how getting into lending will be the natural progression for all payment businesses. “Just like how UPI applications don’t charge the merchant (MDRs), even credit card MDRs will come closer to zero.”

When asked whether Unity Small Finance Bank will offer different kinds of deposits, Sameer replied saying the entity will offer all products a conventional bank will offer. 

Centrum’s MSME and microfinancing business shall be merged into the new entity while BharatPe will contribute to the technology product development and marketing of the product. “We will leverage the 7 Mn merchants on BharatPe’s network and the 100 Mn new consumers that we acquired as part of the Payback acquisition”, explained Sameer. 

For the next twelve months, BharatPe’s CEO sees product development and operationalising taking the front seat. The new entity plans on becoming an INR 40,000 Cr lending business in the next five years.

As for inorganic growth through acquisitions, Suhail Sameer described BharatPe as ‘acquisition hesitant’, explaining that the Payback acquisition was made because it would be more expensive for BharatPe to acquire 100 Mn consumers by itself. 

Sameer said that BharatPe has already committed INR 1,500 Cr of capital to the new venture with plans for incremental capital infusions in the future according to the new bank’s needs.