As Fino becomes small finance bank, the focus shifts to secured lending

Rishi Gupta, managing director and chief executive officer, said the transition will be a cautious one, focusing primarily on secured loans, primarily loans against property (LAP), affordable housing and, to some extent, gold loans Mint in an interview. He added that unsecured lending will be strictly limited and targeted.

I follow the following RBI’s approval on FridayThe bank will examine a higher proportion of secured assets compared to unsecured assets, he said, adding that microfinance institutions are not very keen on working on the lending space.

Beyond new products and portfolios, Gupta sees the SFB approval as a broader validation of Fino’s model and long-term viability: providing stability for employees, opening up credit access for traders, offering investors a different SFB based on payments, and expanding the range of services for customers.

Even inside unsecured loanFino Payments Bank plans to limit itself to small business loans to long-established merchants. ₹5-10 lakh range. Gupta said he wants to focus on calibrated growth rather than reckless lending.

“We have a large network of traders and customers who will be our go-to group of people. We understand our traders well, with their income, their deposits, their transaction flows. This will be our focus area,” he said.

Fino’s merchant network reached 2 million, with 56,000 merchants added in the quarter ending September. Average deposits increased by 36% annually ₹2,306 crore during the quarter.

When asked about the bank’s loan book strategy in the first 12-24 months, Gupta said they worked out some numbers, selected a few geographies and identified areas on which they would focus.

Fino’s small finance bank plan relies heavily on the distribution network built over nearly two decades. The bank’s business correspondent network, which is at the core of its payments and deposits franchise, will now be skilled at originating and partially fulfilling lending leads.

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Small finance bank will have many benefits that payment bank cannot offer; ₹2 lakh cap on savings balances which will enable Fino to offer fixed and recurring deposits.

Fino’s existing liability franchise gets in on the action ₹700-800 crore low-cost deposits at around 2% annual cost will be scaled further through business correspondent network.

Fino’s current and savings accounts reached 16 million in the September quarter, with 910,000 new accounts added. 9,893 accounts were opened per day, an increase of 11% year on year. BC banking product grew 5% annually and ₹35 crore.

The business correspondent business, which currently generates almost 70% of revenues, will have to be partially divested to meet small finance bank norms. Fino expects the broader liability and payment ecosystem to remain intact.

Unlike other SFBs that rely heavily on interest income, Fino starts with a sizeable pool of income that is not fund-based. ₹1,500–1,800 crore.

Gupta expects that over the next three to five years, 75-80% of the bank’s revenues will continue to come from transaction-oriented activities. He believes this will give Fino an advantage as it slowly builds its loan book.

“We don’t want to be aggressive. We want to do the right thing, even at our own pace,” he said.

Technology and artificial intelligence It will be the second important leg. “We don’t have a legacy asset book. For us, technology and AI will be the foundation of how we scale, manage costs and evaluate credit,” Gupta said.

Fino plans to maintain its distinctive low-cost structure and its business correspondent network will enable variable cost-driven expansion on both liabilities and assets, while artificial intelligence and process digitalization will further reduce base-level operating expenses.

He also said corporate hiring will increase in areas such as credit, risk and product, but overall costs will increase modestly.

While Fino doesn’t need new capital to start operations or even for the first few years, Gupta said it may consider raising funds after two quarters to maintain excess buffers as lending expands.

Regulatory conditions for the transition period are largely related to corporate actions at the promoter level rather than shareholding dilution, he said, adding that he expects the transition to be completed within 12-18 months.

Analysts believe that the payments bank, which applied for the SFB license in December 2023, has since been working on the technology and liability creation process and has carried out some pilot work on credit such as commercial loans, gold loans and a partnership-based loan portfolio.

They also believe that Fino’s entry into the lending business will be both cost-effective and seamless, leveraging its established commercial network and existing technological infrastructure.