Fino Payments Bank Set to Become Small Finance Bank After RBI In-Principle Approval

Fino Payments Bank has taken a significant step towards expanding its financial services, receiving in-principle approval from the Reserve Bank of India (RBI) to convert into a Small Finance Bank (SFB). This development marks a potential major shift for the company, subject to further regulatory clearances.

The Path to SFB Status

• Fino Payments Bank applied for the Small Finance Bank licence in January last year.
• The 'on-tap' licensing rules allow payments banks run by resident promoters with at least five years of operations to apply for SFB status.
• Fino met these eligibility criteria, and its application was evaluated under the standard RBI guidelines.
• However, this is an in-principle approval; Fino must now fulfill all remaining regulatory requirements to secure a final banking license.

Regulatory Scrutiny and Compliance

• The approval follows a period where Fino Payments Bank faced multiple compliance actions.
• In October 2025, the bank settled a disclosure-lapse case with the Securities and Exchange Board of India (SEBI) for INR 5.89 Lakh.
• This case stemmed from issues with reporting material events promptly and adequately.
• SEBI had previously flagged complaints regarding fraudulent investment schemes run by Fino employees, leading to a KPMG investigation that identified 19 employees involved in unauthorized schemes.
• Earlier this year, the RBI also imposed a penalty of INR 29.6 Lakh on Fino for not complying with directions related to its payments bank license.

Financial Performance Snapshot

• In the second quarter of FY26, Fino Payments Bank reported a 27.5% decline in net profit, falling to INR 15.3 Crore.
• This profit decrease was primarily attributed to higher tax expenses and a slowdown in income from its traditional transaction businesses.
• Despite the profit dip, income from interest showed a healthy increase of 26% year-on-year, reaching INR 60.1 Crore.
• Other income, however, saw a decline of 16.6% year-on-year, amounting to INR 407.6 Crore.

Market Reaction

• Following the news of the in-principle approval, shares of Fino Payments Bank experienced an uptick.
• The stock closed the trading session 3.88% higher at INR 314.65 on the BSE.

This conversion, if finalized, would significantly expand Fino's operational capabilities, allowing it to offer a broader range of financial products including loans, potentially boosting revenue and market share in the small finance banking segment. However, its ability to fully meet regulatory expectations remains a key factor.

Difficult Terms Explained

• Payments Bank: A type of bank that offers limited banking services like deposits and remittances but cannot issue loans or credit cards.
• Small Finance Bank (SFB): A financial institution licensed by the RBI to provide banking services, with a focus on small businesses, unbanked, and underbanked segments, and importantly, allowed to lend.
• In-principle approval: A conditional approval or preliminary consent granted by a regulatory body, indicating that the entity meets initial requirements but final approval is pending compliance with further conditions.
• On-tap licensing: A system where regulatory licenses are available on demand, allowing eligible entities to apply and be granted licenses as they meet the specified criteria, rather than through periodic application windows.
• SEBI (Securities and Exchange Board of India): India's primary regulator of the securities market.
• RBI (Reserve Bank of India): India's central banking institution, responsible for regulating the country's banks and financial system.