**Fino Payments Bank Receives Approval to Transition to Small Finance Bank**
The Reserve Bank of India (RBI) announced on Friday that it has granted in-principle approval for Fino Payments Bank Ltd (FPBL) to transition into a small finance bank (SFB). This makes Fino the first payments bank to achieve such approval, marking a significant milestone in its 18-year journey.
In-principle approval allows the applicant time to fulfill various conditions before obtaining a final SFB license. According to the RBI’s ‘on tap’ licensing guidelines, existing payments banks that are resident-controlled and have been operational for at least five years are eligible to apply. The RBI confirmed that FPBL’s application was evaluated in accordance with these guidelines.
Rishi Gupta, managing director and CEO of Fino Payments Bank, expressed that this approval presents an opportunity for Fino to unlock its growth potential by broadening its product offerings, reaching a larger customer base, entering the lending space, and establishing a robust liability franchise, ultimately creating significant value for all stakeholders.
Fino submitted its application for an SFB license in December 2023, aiming to leverage its extensive merchant network as a foundation for initial lending and loan collections. The merchant network has expanded to 2 million, with 56,000 new merchants added in the latest quarter. Average deposits surged by 36% year-on-year, reaching ₹2,306 crore during this period.
Gupta highlighted that Fino’s approach to the SFB model is distinct, intending to utilize its existing network of merchants and offices nationwide. He also noted the strength of their corporate team and plans to enhance their asset side.
Payments banks, conceived by a committee led by former RBI board member Nachiket Mor, were established to cater to under-banked and unbanked populations, allowing deposits of up to ₹2 lakh per customer. Fino’s current and savings accounts reached 16 million in the September quarter, with 910,000 new accounts opened, averaging 9,893 accounts per day, an 11% increase year-on-year.
The primary distinction between payments banks and small finance banks is that payments banks are not permitted to lend. Currently, India has six payments banks, including Airtel, Fino, Jio, India Post, NSDL, and Paytm.
RBI guidelines stipulate that SFB applicants must maintain a minimum capital adequacy ratio of 15% of risk-weighted assets, and promoters must hold at least 40% of paid-up voting equity for the first five years. If the promoter’s shareholding exceeds 40% initially, it must be reduced to that level within five years. Additionally, applicants must comply with corporate governance and ‘fit and proper’ criteria.
**FAQ**
**What is the significance of Fino Payments Bank transitioning to a small finance bank?**
The transition allows Fino Payments Bank to expand its services, including lending, and reach a broader customer base, enhancing its growth potential and value for stakeholders.