Fino Payments Bank Ltd., a leading player in the financial inclusion space, has taken a significant step towards expanding its services as it announced its intention to transition into a small finance bank. The decision was approved by the bank’s board, making it the first entity to move towards becoming a small finance bank since the Reserve Bank of India (RBI) opened the doors for such transitions in 2019. However, the move is subject to fulfilling all regulatory requirements, as stated in the exchange notice released on Friday.
According to the RBI’s guidelines for this transition, a payments bank must have completed five years of operations and possess a net worth of at least Rs 200 crore. In case the payments bank falls short of the required net worth, the guidelines permit capital arrangements to raise it to the threshold within 18 months of receiving an in-principle approval for transition from the RBI.
Fino Payments Bank commenced operations after obtaining a license from the regulator in 2017. Remarkably, in 2020, it became the first payment bank to turn profitable. In the quarter ended June 30, the bank reported a net profit of Rs 18.7 crore, representing an 85% year-on-year increase. However, compared to the previous quarter, the net profit experienced a decline of 15%. As of June 30, the bank held deposits worth Rs 1,221 crore. The bank’s capital adequacy ratio stood at 78.09%, down from 106.02% a year ago.
As a specialized entity licensed by the RBI, payments banks are not authorized to lend money to customers. Instead, they can offer savings and current account deposits. Initially, the RBI limited payment banks to accept deposits of up to Rs 1 lakh from each customer, which was later raised to Rs 2 lakh per customer. Additionally, these banks are mandated to invest up to 75% of the deposits they collect in government securities.
Transitioning to a small finance bank will enable Fino Payments Bank to extend lending services to its customer base directly from its balance sheet, a significant milestone in its growth trajectory. Moreover, it will allow the bank to attract higher customer deposits and invest in other securities.
Established as a technology company in 2006, Fino Payments Bank has been a pioneer in promoting financial inclusion in India. The move towards becoming a small finance bank aligns with the bank’s objective of providing enhanced financial services to a broader customer base. In an exchange notice, the bank revealed that its board received a proposal for group corporate restructuring from its holding company, Fino Paytech Ltd. In response, the bank’s board has formed a committee to explore the possibilities of this restructuring.
Fino Payments Bank’s pursuit of a small finance bank license demonstrates its commitment to evolve and adapt to the changing financial landscape while empowering customers with a wider array of banking services. The move is expected to bolster financial inclusion efforts in India and foster greater access to credit and investment opportunities for customers across the nation.