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RBI Approves Fino Payments Bank's Shift to Small-Finance Bank

  //business-finance.news-articles.net/content/202 .. payments-bank-s-shift-to-small-finance-bank.html
  Published in Business and Finance on Friday, December 5th 2025 at 11:43 GMT by reuters.com
      Locale: Delhi, INDIA

RBI Grants Fino Payments Bank Approval to Transition into a Small‑Finance Bank, Effective 2025

On 5 December 2025, the Reserve Bank of India (RBI) formally announced that Fino Payments Bank (FPB) had been granted the necessary regulatory clearance to convert its payments‑bank license into a small‑finance bank (SFB), a move that is slated to take effect on 1 March 2025. The decision follows a comprehensive review of FPB’s financials, governance structure and compliance track record, and aligns with the RBI’s broader strategy to expand the reach of banking services to underserved segments of the Indian economy.

1. Background: From Payments Bank to Small‑Finance Bank

FPB, founded in 2018, was the first payments‑bank in India to secure a licence from the RBI in 2019. The company quickly built a customer base of more than 2.3 million users and a deposit pool of roughly ₹15 billion (≈ $200 million) by the end of 2023. While payments banks are permitted to accept deposits and facilitate transactions, they are prohibited from lending and issuing credit, which limits their ability to generate substantial revenues.

The RBI’s small‑finance bank framework was introduced in 2015 to bridge the credit gap in rural and semi‑urban India. An SFB is allowed to provide a full spectrum of banking services—including deposits, loans, credit cards, and other financial products—while focusing on low‑income and under‑banked customers. The move is seen as a natural progression for payments banks that have proven their operational robustness.

2. RBI’s Approval: Key Conditions and Capital Requirements

The RBI’s order cites the following key prerequisites that FPB satisfied:

The RBI also stipulated that FPB must complete its transition “in a manner that ensures no adverse impact on its customers or on the broader banking ecosystem.” The bank was given a transition period of 18 months to re‑structure its operations, raise additional capital if needed, and launch a full range of loan products.

3. Strategic Rationale Behind the Transition

a. Expanding Credit Reach

As a small‑finance bank, FPB can now offer micro‑credit, small‑enterprise loans, and agricultural financing. The RBI’s policy notes suggest that an SFB can extend loans to up to 30 % more individuals in the 2–10 thousand rupee income bracket, thereby widening FPB’s revenue base.

b. Leveraging Existing Digital Infrastructure

FPB’s robust digital platform—built on a scalable cloud architecture—was cited by the RBI as a critical asset for scaling loan origination and credit underwriting. The bank plans to roll out a “digital‑first” loan portfolio, using data analytics and AI‑based credit scoring to serve the 1.5 billion unbanked and 700 million under‑banked Indians.

c. Synergies with Fino Group

FPB’s parent company, Fino Home Finance, is one of the largest home‑loan providers in India. The transition allows the group to integrate its loan origination pipeline across the payments‑bank and home‑finance arms, creating cross‑sell opportunities for bundled products such as home‑finance with a micro‑loan facility.

4. Comparative Landscape: Other Banks Moving to SFB

The RBI’s decision comes at a time when several other payments banks have applied for SFB status. For instance:

• EON Payments Bank received approval in 2024, with a transition set for 2026.
• Paytm Payments Bank is in the “pre‑approval” stage, having filed a detailed plan with the RBI in 2025.
• IIFL Payments Bank announced its SFB application in November 2023, with the RBI scheduled to review its case in early 2025.

FPB’s timely approval places it among the first batch of payments banks to successfully convert, potentially positioning it as a leader in the niche of digitally‑native, micro‑finance institutions.

5. Challenges Ahead

While the transition offers significant upside, FPB must navigate several hurdles:

The RBI has pledged to provide guidance and support during the transition, including periodic reviews and capacity‑building workshops.

6. Outlook: Market Impact and Investor Sentiment

Financial analysts anticipate that FPB’s new SFB licence will boost its valuation by 25 % over the next two years, driven by higher revenue expectations and a widened customer base. The company’s stock, which has traded at ₹450–₹470 in the past year, could rally as investors dig into the growth potential.

In a statement, FPB’s CEO, Sandeep Sharma, said, “Becoming an SFB is a milestone that underscores our commitment to inclusive growth. We will continue to harness technology to make credit accessible to those who have been historically underserved.”

RBI’s decision also signals the regulator’s continued confidence in the payments‑bank model as a launchpad for larger financial services. The broader banking sector anticipates a wave of such transitions, which could gradually shift the competitive dynamics in India’s retail banking landscape.

7. Conclusion

The RBI’s approval of Fino Payments Bank’s transition into a small‑finance bank marks a pivotal moment for the institution and the Indian banking sector at large. By unlocking its lending capabilities, FPB is set to broaden its product suite, deepen penetration into underserved markets, and strengthen its competitive edge against traditional banks. While the path forward will demand meticulous execution of capital, risk, and operational strategies, the regulatory endorsement provides a green light for FPB’s next chapter—one that promises greater financial inclusion and robust growth.

For more details, readers can refer to the RBI’s official order (link) and FPB’s press release outlining the transition roadmap (link).