Fino Payments Bank To Transition To Small Finance Bank

Fino Payments Bank Ltd. said that its board has approved a proposal to transition into a small finance bank.

The board's approval in this matter is subject to fulfilling all regulatory requirements, it said in an exchange notice on Friday.

With this, Fino Payments Bank has become the first such entity to move towards becoming a small finance bank since the Reserve Bank of India opened the doors in 2019.

According to the regulator's requirements for such transitions, a payments bank must have completed five years of operations and have a net worth of Rs 200 crore.

If the payments bank does not have the required net worth, the guidelines allow capital arrangements that could raise the net worth to the threshold within 18 months of receiving an in-principle approval for transition from the RBI.

According to Rishi Gupta, managing director and chief executive officer of Fino Payments Bank, the lender's net worth stands at over Rs 550 crore and it has six years of operations under its belt.

After receiving a licence from the regulator, Fino Payments Bank started operations in 2017. Later in 2020, it became the first payments bank to become profitable. In the quarter ended June 30, the payments bank reported a net profit of Rs 18.7 crore, up 85% year-on-year. On a sequential basis, net profit dropped 15%.

As of June 30, the bank had deposits worth Rs 1,221 crore. Fino Payments Bank reported a capital adequacy ratio of 78.09%, down from 106.02% a year ago.

Payments banks are specialised entities licenced by the RBI and are not allowed to lend money to any customers. They can offer savings and current account deposits to their customers.

While initially the regulator only allowed payments banks to accept deposits of up to Rs 1 lakh from each customer, the limit was later raised to Rs 2 lakh per customer. They are mandatorily required to place up to 75% of the deposits they collect in government securities.

A transition to a small finance bank will open the doors for Fino Payments Bank to finally lend to its customer base from its balance sheet. It would also allow it to acquire higher customer deposits and invest in other securities. Established in 2006 as a technology company, the firm has been working in the financial inclusion space for many years.

"We intend to remain a transaction-focused bank and not a traditional small finance bank. We do not expect lending to contribute more than 20% of our revenue," Gupta told BQ Prime.

Over years of functioning as a payments bank, Fino has built a repository of transaction data on its customers. This will prove to be crucial once lending starts, he said.

The bank plans to introduce three lending products once it receives a small finance bank license. These will include individual loans under Rs 50,000, vendor financing and secured lending toward micro, small and medium enterprises. The secured product would be launched after one to two years.

In the exchange notice, Fino Payments Bank said its board received a letter from its holding company, Fino Paytech Ltd., with a proposal for group corporate restructuring. The payments bank's board has constituted a committee to explore such a restructuring.

The bank will take a call on how to proceed with the restructuring after the committee completes its assessment, Gupta said. As things stand, all options including a reverse merger are open to the bank, he said.