The Delhi High Court has paused Unity Small Finance Bank’s plan to increase its authorized share capital amid a dispute between shareholders BharatPe and Centrum Financial Services. BharatPe blocked the move, fearing its stake could drop from 49% to 21% upon warrant conversion. Investors should track this legal clash as it involves long-term ownership structure and future capital-raising plans for the bank.
Detailed Coverage
A legal standoff is unfolding at Unity Small Finance Bank as its two primary shareholders, BharatPe and Centrum Financial Services, remain at odds over the bank's capital structure. The Delhi High Court has stepped in to halt a proposed increase in the bank's authorized share capital, providing temporary relief to BharatPe, which has formally opposed the move.
The Dispute Over Stake Dilution
The friction traces back to warrants issued by the bank in October 2021, which are scheduled to expire in October 2026. Converting these warrants into shares requires an expansion of the authorized capital base. BharatPe, which currently holds a 49% stake, has argued that such a conversion would significantly dilute its ownership, potentially bringing it down to approximately 21%. BharatPe’s legal representatives have highlighted that this dilution could create complications regarding foreign investment regulations under the Foreign Exchange Management Act.
Conversely, Centrum Financial Services maintains that the dilution is a result of BharatPe's own decision to skip previous capital infusion rounds. Centrum asserts that BharatPe was given the opportunity to subscribe to warrants in proportion to its holding, a claim central to their side of the disagreement. The conversion involves moving from warrants to compulsory convertible preference shares, which would eventually be converted into equity before the bank launches an Initial Public Offering.
Bank Operations and Regulatory Standing
Despite the friction between its major shareholders, Unity Small Finance Bank maintains that its day-to-day operations are stable. From a financial health perspective, the bank reports a capital adequacy ratio of around 26%. This figure is notably higher than the 15% minimum mandated by the Reserve Bank of India, indicating that the bank currently has a strong cushion of capital. This suggests that the proposed capital increase was likely a long-term strategic step rather than an immediate need to cover operational losses or urgent funding gaps.
Unity Small Finance Bank was formed as a joint venture between Centrum Financial Services and BharatPe’s parent company, Resilient Innovations, following the RBI’s move to resolve the assets of the former Punjab and Maharashtra Cooperative (PMC) Bank. As part of its long-term regulatory commitment, BharatPe is required to bring its stake in the bank down to 10% by the year 2029.
The case is currently being reviewed by the Delhi High Court, with the next hearing set for October 28, 2026. While the legal process is underway, there is a possibility that both parties could reach an out-of-court settlement to resolve the deadlock. Investors should monitor future updates regarding this resolution, as any change in the shareholder agreement or capital structure could influence the bank’s future path toward a public listing.