RBI gives Fino Payments Bank in-principle approval to convert to small finance bank

MUMBAI: The Reserve Bank of India on Friday said it has given in-principle approval to Fino Payments Bank Ltd (FPBL) for conversion into a small finance bank (SFB). Thus, Fino became the first payment bank to receive this approval.

Approval in principle gives the applicant time to meet various conditions before receiving the final SFB licence. The approval marks a milestone in Fino’s 18-year journey.

Under the Reserve Bank of India’s (RBI) “instant” licensing rules for small finance banks, existing payments banks controlled by incumbents and operating for at least five years are eligible to apply. “FPBL application was evaluated as per the procedure prescribed in the guidelines,” said the RBI.

Fino applied for the SFB license in December 2023, claiming it could use a large portion of its merchant network as an initial credit base and for loan collections and repayments. The seller network has since grown to 2 million, with 56,000 sellers added in the latest September quarter. Average deposits increased by 36% annually ₹2,306 crore during the quarter.

“…The way we look at SFB is a very different model where we plan to leverage our existing network of merchants and offices across the country. We also have good manpower in corporate functions. We will look at adding more people on the asset side,” Rishi Gupta, managing director and chief executive officer, said during Fino’s Q2 earnings call.

Conceived by a committee led by former RBI board member Nachiket Mor, payment banks are designed to serve the unbanked and unbanked segments and ₹2 lakh per customer. 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.

The main difference between payment banks and small finance banks is that the former cannot lend. There are currently six payment banks in India, including Airtel, Fino, Jio, India Post, NSDL and Paytm.

RBI guidelines require SFB applicants to have a capital adequacy ratio of minimum 15% of risk-weighted assets and promoters to have at least 40% of paid-up voting equity for the first five years. If the entrepreneur’s share initially exceeds 40 percent, it must be reduced to this level within five years. Applicants must also meet corporate governance and ‘fit and proper’ criteria.

As of the September quarter, Fino’s capital adequacy ratio was 77.2% and its promoter partnership ratio was 75%.

The approval came soon after the RBI gave its nod to AU Small Finance Bank to transition into a universal bank on August 7; this was the first such upgrade in a decade. Ujjivan Small Finance Bank, which applied for a universal bank license in February last year, expects a decision by the end of 2025.