MUMBAI: The Reserve Bank of India on Friday said it has granted in-principle approval to Fino Payments Bank Ltd (FPBL) to transition into a small finance bank (SFB). With this, Fino becomes the first payments bank to receive such approval.
An in-principle approval gives the applicant time to meet several conditions before receiving a final SFB licence. The approval marks a milestone in Fino’s 18-year journey.
Under the Reserve Bank of India’s (RBI) ‘on tap’ licensing guidelines for small finance banks, existing payments banks controlled by residents and with at least five years of operations are eligible to apply. “The application of FPBL was assessed as per the procedure laid down in the guidelines,” the RBI said.
Fino applied for an SFB licence in December 2023, betting that it could tap a large portion of its merchant network as an initial lending base as well as for loan collections and repayments. Its merchant network has since grown to 2 million, with 56,000 merchants added in the latest September quarter. Average deposits rose 36% year-on-year to ₹2,306 crore during the quarter.
“…the way we are looking at SFB is a very differentiated model where we plan to use our existing network of merchants and offices all across the country. Also, we have a good strength of people in the corporate functions. We will be looking at adding more people on the asset side,” Rishi Gupta, managing director and chief executive said during Fino’s Q2 earnings call.
Conceived by a committee led by former RBI board member Nachiket Mor, payments banks were designed to serve under-banked and unbanked segments and can accept 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 added. It opened 9,893 accounts per day, up 11% year-on-year.
The key difference between payments banks and small finance banks is that the former cannot lend. India currently has six payments banks, including Airtel, Fino, Jio, India Post, NSDL and Paytm.
RBI guidelines require SFB applicants to 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 promoter shareholding exceeds 40% initially, it must be reduced to that 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 stood at 77.2%, and promoter shareholding was 75%.
The approval comes shortly after the RBI cleared AU Small Finance Bank on 7 August to transition into a universal bank, marking the first such upgrade in a decade. Ujjivan Small Finance Bank, which applied for a universal bank licence in February last year, is expecting a decision by the end of 2025.
#RBI #Fino #Payments #Bank #inprinciple #approval #convert #small #finance #bank
