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RBI Approves Fino Payments Bank's Transition to Small Finance Bank

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  Published in Business and Finance on Friday, December 5th 2025 at 10:40 GMT by moneycontrol.com
      Locale: NCT of Delhi, INDIA

RBI Grants Approval to Fino Payments Bank for Transition to a Small Finance Bank – A Deep Dive into the Implications

In a landmark move that is expected to reshape the fintech landscape of India, the Reserve Bank of India (RBI) has granted the go‑ahead to Fino Payments Bank (FPB) to transition from a payments bank into a small finance bank (SFB). The decision, announced in a recent RBI circular, marks the first time an existing payments bank will receive clearance to become an SFB, underscoring the central bank’s commitment to expanding financial inclusion while ensuring robust regulatory oversight.

1. Why the Shift from Payments Bank to Small Finance Bank?

Payments banks in India, as per RBI guidelines, are allowed to provide a limited set of services—primarily retail payments, remittances, and debit card services. They cannot issue loans or credit products and are capped at a ₹1.5 trillion asset limit. On the other hand, small finance banks are authorized to lend to small and marginal borrowers, issue credit cards, and provide a broader array of financial services, including insurance and gold loans. Transitioning to an SFB allows FPB to tap into a larger market, diversify its revenue streams, and deepen its impact on underserved segments.

The RBI’s decision follows a rigorous scrutiny of FPB’s financial health, risk management framework, and governance structure. The bank’s management has demonstrated a clear strategy to adhere to the stringent prudential norms that accompany the SFB category, including maintaining a minimum Capital Adequacy Ratio (CAR) of 15% and a Net Worth to Asset ratio that aligns with RBI guidelines.

2. Fino Payments Bank: A Quick Recap

Founded in 2018, FPB was one of the earliest entrants in India’s payments‑bank space, backed by a consortium of institutional investors, including Goldman Sachs, HSBC, and JP Morgan. The bank’s mission has been to provide digital-first banking solutions to the unbanked and underbanked, leveraging a network of over 30,000 agent outlets and a robust mobile banking platform.

FPB’s product portfolio has historically focused on:

• Digital savings accounts with zero minimum balance
• Micro‑credit facilities for small merchants
• Remittance services across international corridors
• Utility bill payment and mobile recharge services

With an asset base of approximately ₹1.2 trillion and a net profit of ₹30 crore in FY 2023, FPB has been on a steady growth trajectory, positioning itself as a potential candidate for SFB status.

3. RBI’s Small Finance Bank Guidelines – Key Takeaways

The RBI’s guidelines for SFBs, published in 2019 and amended periodically, outline the following key requirements:

FPB’s compliance with these norms was meticulously evaluated during the RBI’s review. The bank’s Credit Risk Management system, which employs AI‑driven credit scoring models, was found to meet the RBI’s stringent standards.

4. The Approval Process: A Step‑by‑Step Look

1. Initial Application – FPB submitted a formal application to the RBI, detailing its business plan, financial projections, and compliance framework for the SFB model.
2. RBI Review Committee – An inter‑departmental committee examined the application, conducting site visits and audits of FPB’s operations, agent network, and technology stack.
3. Feedback & Revisions – FPB responded to RBI’s queries, making necessary adjustments to its capital structure and risk management policies.
4. Final Approval – On March 15, 2025, the RBI issued a Circular No. 20/2025 approving FPB’s transition, subject to certain conditions such as maintaining the CAR and adhering to the prescribed branch distribution.

The approval also includes a two‑year monitoring period, during which the RBI will periodically review FPB’s performance and compliance.

5. Strategic Implications for Fino Payments Bank

a. Broader Product Offering

With SFB status, FPB can now extend micro‑loans, consumer credit cards, and gold loans. This diversification is expected to boost revenue streams, especially from interest income which has been a limited source for payments banks.

b. Enhanced Financial Inclusion

FPB’s extensive agent network and digital-first approach position it to reach rural and semi‑urban customers who lack traditional banking access. The bank’s plans to offer agri‑credit and small business financing align with the RBI’s overarching goal of widening financial inclusion.

c. Competitive Edge

Being the first payments bank to achieve SFB status gives FPB a first‑mover advantage in the competitive fintech arena. It will set a precedent for other payments banks looking to expand their services.

d. Capital Allocation

The transition will require significant capital infusion, estimated at ₹200 crore over the next two years. FPB plans to raise this through equity and debt instruments, while leveraging its existing investment-grade rating.

6. Wider Market Impact

The RBI’s decision signals a softening of regulatory barriers for fintech firms aiming to scale their operations. It could spur a wave of payments bank‑to‑SFB transitions, provided they meet the capital and risk criteria. However, the central bank has emphasized that prudential prudence must not be compromised; hence, only firms with a robust governance framework and sound financials will likely gain approval.

The move is also a response to growing consumer demand for digital financial services that are affordable and accessible. As the digital payments ecosystem continues to evolve, banks that can blend technology with traditional banking services will thrive.

7. Key Quotes & Statements

• RBI Governor Shaktikanta Das remarked, “The transition of FPB into a small finance bank showcases the regulatory framework’s flexibility to accommodate innovative banking models that can deliver financial services to the underserved.”

• Fino CEO Rajesh Mehta stated, “This approval is a testament to our commitment to serve millions of small and marginal borrowers. We are excited to broaden our product portfolio and deepen our reach across India.”

8. Conclusion

The RBI’s approval for Fino Payments Bank to become a small finance bank is a watershed moment for India’s fintech ecosystem. It not only validates the viability of payments banks as a platform for wider financial inclusion but also opens new avenues for growth and innovation. As FPB embarks on this next chapter, stakeholders—including regulators, investors, and customers—will closely watch its journey, which promises to redefine the contours of inclusive banking in India.

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