Stating clearly the bank’s interest to be upgraded to a small finance bank from being a payments bank, Rishi Gupta, the managing director and chief executive of Fino Payments Bank, shared exclusively with Moneycontrol that the bank won’t be give up on its aspiration to move up the ladder even if payments banks were allowed to extend credit to borrowers at some point of time.
Also clearing the air around why the reverse merger with its parent entity is taking longer than expected, Gupta urged that SFB conversion and collapsing the holding company structure should be viewed as separate corporate events. As the conversation progressed, the Fino chief elaborated on the bank’s plans to firm up its deposit base and how penetration into the UPI market is helping it.
Excerpts from the exclusive interaction:
Where do we stand on reverse merger?
The reverse merger process started last year in July. We received a communication from the holding company that they would like to look at how we can do a corporate restructuring between both the companies for the benefit of the two entities and their shareholders and stakeholders at large. The committee is now looking at it. Once we get the approvals from the holding company, we would take it to a formal board meeting for a detailed discussion. Once that process is over, the formal process of appointing a merchant banker, getting the swap ratios, and making regulatory applications will kick off.
Is it because of the diversified shareholding at your parent company that they are taking longer than expected to initiate the process?
All the investors, big and small, are on the same page. There is no disconnect with any investor as such. Every investor has internal approval process. Some investors are more flexible to give an in-principle approval before a formal go-ahead, while others want to get a broad consensus before even giving the in-principle approval. We are expecting some movement happening on that side. I would not like to put a time frame to it, but the sooner, the better.
Usually if approvals take more than three months to come through, the application is kept in abeyance… If that be the case, would life be materially different for Fino Payments Bank as SFB conversion would take longer?
I don't know about this 90-day rule. Having said that, there has been engagement with the RBI on this application. There are conversations happening and data shared when sought. Nothing is on hold. It is just that the approval involves a longer, lengthy process. We look at SFB as an add-on to our payments bank. We come from a digital, distribution and data driven DNA. We built businesses around transactions, and then we move those transactions into ownership. We call this strategy as transaction to activation and accounts to monetisation (TAM strategy). Monetisation will come through SFB conversion. Our payments bank journey has been seven-year-plus and we have been fairly successful. We have more than 1.26 crore customers and they demand that we do more with them. Having done the hard work of laying the foundation, customers have services expectation. At some point of time, they would also like to take some loans. We see there is a huge opportunity and demand. Financial inclusion has moved from access to banking to effectiveness of banking by bringing more products and services under one umbrella. That is where we believe that as a payments bank, our journey to an SFB will be holistic.
If payments banks are allowed to do small-ticket lending, will that help or you would still want to be an SFB?
We have applied for SFB licence and are eligible to move away from all the restrictions to a more open bank. Therefore, SFB will be preferred. Converting to SFB will have its challenges. But, when we started as a payments bank, everybody was very sceptical. Not only us, but other players in the industry too have proved that it can be successful. If lending is permitted for payments banks, it may act as a bridge for us but we will continue with our aspiration of converting into an SFB.
CASA deposits stood at Rs 1,800 crore in Q2. As you building the deposit base fast in anticipation of a licence upgrade?
Our CASA base has been growing at 35–40 percent on a year-on-year basis. I expect the same growth to continue for the next couple of years. We have seen that customer balances are also growing. Active customer balance will be about Rs 2,000 or a little more. We are seeing that a lot of customers who are becoming digitally active (that’s 55–60 percent of our new customers), moving to UPI. People have still not moved to use Fino as a primary bank account. With the SFB model coming in, we'll be able to offer more products like recurring and fixed deposits with higher interest rates. We can also tweak our savings bank rate and offer them a higher interest.
You are also strengthening your UPI base. How is this adding to your financials?
Fino started as a phygital (physical outlets with digital devices) company, and we built up the entire distribution channel. Couple of years back, the government started to push digital in a big way. We also started to see customers coming and asking us how UPI can be made available on Fino ecosystem leading to our foray into offering UPI. Initially we were never aggressive and facilitated UPI transactions using an outsourced switch. However, with rapid increase in UPI transactions on our platform, we built our own UPI switch, which went live about 18 months ago.
We were one of the testing banks for the UPI circle. Now about 1.5 percent of UPI ecosystem transaction volume come through the Fino platform. For smaller value transactions, the percentage of cost is very high in UPI. There is no direct revenue source from UPI right now, but indirectly through balances and higher renewal percentage, we are able to recover a part of cost.
Your capital adequacy was at 75 percent in Q2. At this level, isn't capital becoming a cost for you, rather than comfort? Would you deploy it on inorganic options?
Capital adequacy will become very relevant when we move to an SFB model. We will have to add more capital to the business, because the SFB model is very different from the payments bank model. We are not looking at acquisitions right now. Maybe, as an SFB, there could be something which we could consider.
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