Fino Payments Bank Receives RBI Nod to Convert into Small Finance Bank (SFB)

Fino Payments Bank Ltd. has received ‘in-principle’ approval from the Reserve Bank of India (RBI) to convert into a Small Finance Bank (SFB).

First Payments Bank to Secure SFB Conversion Nod

• Fino becomes the first-ever payments bank in India to receive in-principle approval for SFB transformation.
• Eligibility achieved after completing the mandatory five years of operations, as required under RBI’s on-tap licensing guidelines.
• Fino launched its payments bank services in 2017 (though it originally started as a payments technology company in 2006).
• Fino had applied for the SFB license in October–December 2023; the approval came nearly two years later.
• Important: This in-principle approval does NOT immediately make Fino an SFB. The bank must complete all regulatory requirements within a stipulated timeline of 18 months before RBI issues the final license.

Fino’s Track Record

• Became the first profitable payments bank in 2020.
• Became the first payments bank to be listed on stock exchanges in 2021.
• Played a key role in India’s financial inclusion journey, delivering Direct Benefit Transfer (DBT) services to beneficiaries.

What Conversion to SFB Will Enable

After full authorization, Fino will be able to:

• Accept higher-value deposits without the ₹2 lakh per-customer limit applicable to payments banks.
• Start lending activities to individuals, MSMEs, and small businesses.
• Offer loans such as microcredit, agri-loans, business loans, and retail loans.
• Expand its branch network (with 25% mandatorily in unbanked rural centres).
• Operate like mainstream commercial banks but with a focus on underserved segments.

Eligibility to Become a Small Finance Bank (SFB)

Per RBI’s on-tap licensing guidelines (originally 2014, revised 2019, further updated as the RBI (Small Finance Banks – Licensing) Guidelines, 2025):

1. Eligible Entities

• Existing Payments Banks, NBFCs, Microfinance Institutions (MFIs), Local Area Banks (LABs), and other resident-owned entities.
• Resident individuals/professionals with at least 10 years of senior-level experience in banking and finance.
• The applicant must be promoted by residents (Indian citizens/companies controlled by residents).

2. Operations & Compliance Track Record

• Payments banks must complete a minimum of 5 years of operations.
• Must show sound financials, a viable profitability path, and a clean compliance history.

3. Capital Requirements

• Minimum paid-up voting equity capital / net worth: ₹200 crore (₹100 crore initially for UCBs transitioning, to be raised to ₹200 crore within 5 years).
• Promoter contribution: at least 40% of paid-up capital, locked in for 5 years, to be progressively diluted to 26% within 12 years.
• Minimum Capital Adequacy Ratio (CRAR) of 15% of risk-weighted assets on a continuous basis (Tier I capital at least 7.5% of RWAs).

4. Foreign Shareholding

• Governed by the FDI policy for private sector banks.
• Aggregate FDI permitted up to 74% of paid-up capital — up to 49% via the automatic route, and beyond 49% up to 74% via the government/RBI approval route.
• At least 26% of paid-up capital must be held by residents at all times.

5. Priority Sector & Financial Inclusion Focus (Revised Norms

• The overall PSL target has been reduced from 75% to 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.
• 40% of ANBC/CEOBE must continue to be allocated to specified PSL sub-sectors (agriculture, MSMEs, education, housing, weaker sections) as per extant RBI prescriptions — this remains unchanged.
• The flexible/discretionary component has been reduced from 35% to 20%, to be deployed across any PSL sub-sectors where the SFB has competitive advantage.
• At least 50% of the loan portfolio must consist of advances up to ₹25 lakh ticket size (unchanged).

6. Branch Expansion Rules

• At least 25% of branches must be located in unbanked rural centres.

7. Other Key Conditions

• Maximum single/group obligor exposure restricted to 10%/15% of capital funds.
• SFBs are granted scheduled bank status immediately upon commencement of operations.
• Listing on stock exchanges is mandatory within 8 years of commencing operations.
• SFBs are subject to all prudential norms (CRR, SLR, etc.) applicable to commercial banks, with no regulatory forbearance.