Fino Bank's Bold Leap: From Payments to Universal Banking by 2035? RBI Nod Sparks Lending Dreams!

Fino Payments Bank Eyes Universal Banking Status After SFB Nod

Fino Payments Bank is set to embark on a transformative journey, aiming to become a universal bank by approximately 2035. This ambitious goal follows the receipt of in-principle approval from the Reserve Bank of India (RBI) in early December 2025 to transition into a Small Finance Bank (SFB). This strategic shift will enable Fino Bank to commence lending operations, expanding its service offerings significantly.

The Core Issue: A New Banking Paradigm

The transition from a payments bank to an SFB is a critical pivot for Fino Bank. Unlike many SFBs that originated from microfinance institutions, Fino Bank leverages its existing digital-first, transaction-led model. This allows them to build upon a substantial foundation of over 20 lakh merchants and 1.6 crore customers, with 60 lakh actively using UPI. This established network is seen as a ready base for layering deposits and loans onto existing payment relationships.

Financial Implications and Strategic Investments

Fino Bank currently holds deposits exceeding ₹3,000 crore, with a low funding cost under 2%. The company plans annual fundraising of ₹600–800 crore to maintain a stable CASA base and ensure cheaper funding. A significant portion of future investment will target technology, including migrating its core banking system to Finacle and enhancing digital capabilities. Capital expenditure is budgeted at approximately ₹100–150 crore over the next two to three years, primarily for IT upgrades.

The bank intends to establish over 100 branches and 100 asset centres within three years using a hub-and-spoke model. This approach aims to keep fixed costs low, with asset centres managing merchant relationships and loans, and branches focusing on gathering liabilities. This strategy reinforces their merchant-first approach, targeting the middle-income segment through a tech-driven network.

Product Expansion and Future Outlook

On the lending front, Fino Bank will concentrate on secured credit products. Initial offerings will include affordable housing loans, micro loans against property, small-ticket merchant/MSME loans, and gold loans. Personal loans will be considered selectively, utilizing customer and merchant data for risk assessment. The bank also plans to introduce secured credit cards and expand insurance and mutual fund distribution services.

Hiring will be selective, adding 500–600 staff over two to three years for corporate and field roles. Fino Bank emphasizes its established infrastructure and a team with considerable experience, aiming to integrate seamlessly with its payments bank DNA of merchant-led operations, personal connect, and last-mile reach.

Profitability and Capital Adequacy

Fino Bank anticipates remaining profitable throughout this transition. While costs are expected to rise in the initial phase due to system upgrades and hiring, revenue growth is projected to follow. The bank reported a profit of ₹108 crore last year and expects this trend to continue, with incremental costs potentially trimming margins temporarily. Capital is deemed adequate, with current levels above regulatory thresholds, and no immediate plans for fresh capital raising are in place for the next financial year.

Business Correspondent Division

The future of Fino Bank's business correspondent (BC) division is under consideration. Options include hiving it off into a separate group company or divesting it. The BC business contributes about 8% of revenue, and any restructuring is not expected to materially impact the overall business. Regulatory requirements for SFBs mean the BC arm would need to operate as a separate entity if it is to continue servicing the bank.

Impact

This transformation could significantly enhance Fino Bank's market position by enabling lending operations, diversifying revenue streams, and bringing it closer to universal banking services. Its focus on the underserved middle-market and merchant ecosystem, powered by technology, positions it uniquely in the competitive SFB landscape. The successful execution of this strategy could lead to sustained growth and improved financial performance.

Impact Rating: 7/10

Difficult Terms Explained

• Universal Bank: A bank that offers a wide range of financial services, including retail banking, corporate banking, investment banking, and insurance.
• Small Finance Bank (SFB): A specific type of bank licensed by the RBI to provide financial services primarily to underserved sections of the economy, with a focus on lending.
• In-principle approval: A preliminary approval granted by a regulatory body, indicating that the proposed plan meets initial requirements, subject to further conditions being met.
• Payments Bank: A differentiated bank license introduced by the RBI that can accept deposits but has restrictions on lending and maximum account balance.
• CASA: Stands for Current Account Savings Account. It refers to low-cost deposits held by banks.
• CapEx: Capital Expenditure, which refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, and equipment.
• DTP model: Digital, Distribution, and Partnerships model.
• Business Correspondent (BC): An agent appointed by a bank to provide banking services, especially in areas where traditional bank branches are not viable.
• Hived off: To separate a part of a business or organization into a separate entity.