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Clearing the decks for the takeover of crisis-ridden Punjab and Maharashtra Cooperative (PMC) Bank by Centrum Financial Services, the Reserve Bank of India has granted its "in principle" approval to it for setting up a small finance bank (SFB).

The "in-principle" approval has been accorded in specific pursuance to Centrum Financial Services Ltd's offer dated February 1, 2021, in response to the Expression of Interest notification dated November 3, 2020, published by the PMC Bank, the RBI said in a statement on Friday.

"The Reserve Bank of India (RBI) has today decided to grant 'in-principle' approval to Centrum Financial Services Ltd (the applicant) to set up a small finance bank under general 'Guidelines for on tap Licensing of Small Finance Banks in the Private Sector' dated December 5, 2019," it said.

The central bank will consider granting a licence for commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949, on being satisfied that the applicant has complied with the requisite conditions laid down by the RBI as part of "in principle" approval.

In March, the RBI had further extended the restrictions on the bank till June 30. The central bank had then said that the process of reconstruction will be commenced as soon as the aforesaid objectives are achieved to the best possible extent.

The PMC Bank had received binding offers from certain investors for its reconstruction, in response to the EOI dated November 3, 2020 floated by the bank.

The RBI and the PMC Bank are presently engaging with prospective investors in order to secure best possible terms for the depositors and other stakeholders while ensuring long term viability of the reconstructed entity, the RBI had said in March, adding that given the financial condition of the PMC Bank, the process is complex and is likely to take some more time.