Fino Payments Bank mulling transition to SFB, to approach RBI after internal approvals: MD

Rishi Gupta, MD & CEO, Fino Payments Bank

Fino Payments Bank has started internal discussions for converting into a small finance bank (SFB) and will approach the banking regulator once all approvals are in place, its Managing Director and Chief Executive Officer Rishi Gupta told Moneycontrol.

“Internally, the discussions are happening within the team; nothing concrete as such has come out,” Gupta said in an exclusive interview. “We will be approaching RBI (Reserve Bank of India) at a later date once we have our internal and board approvals.”

When asked about the likely timeline for transition, Gupta said it will “roughly” take about 18-24 months from the time the bank gets its first internal approval.

Getting an SFB licence would mean Fino could give out loans, access more deposits and boost profitability.

Payments banks operate on a smaller scale and are meant to boost financial inclusion in the country. Unlike scheduled commercial banks, these banks cannot advance loans or issue credit cards. However, they can accept demand deposits up to Rs 2 lakh and offer remittance, third-party fund transfer and other banking services.

Gupta said a payments bank has to complete five years before applying for a transition to an SFB. Fino Payments Bank was launched in 2017 and was the first such bank to get listed on the bourses in 2021. It is a subsidiary of Fino Paytech Ltd, which is backed by marquee investors such as Bharat Petroleum, ICICI group, Blackstone, IFC, Intel and Life Insurance Corporation, among others.

“For us, SFB is a differentiated story. It is not a traditional brick-and-mortar credit-based SFB plan; it is a story where we can offer that product to the customer through our merchant points and digital platform in an asset-light manner,” Gupta said.

Credit, according to Gupta, will be an “added advantage” and only an addition to the product suite. Fino’s main focus would continue on transaction income even in the SFB era whenever that happens, he added.

Varun Khandelwal, director and fund manager at Bullero Capital, said that for payment banks to aspire to transition to an SFB is the natural path of growth.

“They've already spent time and effort building a deposit franchise,” Khandelwal said. “With the small finance bank licence, they will be able to offer credit, which will allow them to become more entrenched in the customer value chain.”

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Business outlook

In the July-September 2022 quarter, Fino's profit after tax grew 75 percent year on year (YoY) to Rs 13.8 crore. The share of subscription-based revenue increased to 30 percent from 25 percent on a quarter-on-quarter (QoQ) basis, indicating sustainable annuity income. Net revenue margin also improved from 30.3 percent to 30.9 percent QoQ in the reporting quarter. The bank’s registered merchant count increased by 51 percent on year to 12.25 lakh.

Gupta acknowledged that merchant points continue to be one of Fino’s biggest strengths, given that the payments bank is now present in more than 90 percent of India’s districts and more than 30 percent of villages. The bank is growing at about 20,000 to 25,000 merchants per month and should add around 1.25-1.5 lakh merchants in FY23, he said.

“Our access points are only going to go up over the next few years,” added Gupta. “Our target is to increase merchants to 20 lakh over the next three years from the current 12.2 lakh.”

Fino is also targeting to build its deposit base gradually, the MD said. In the July-September quarter, the payments bank’s total deposits grew 77 percent on a YoY basis. Fino added 7.6 lakh low-cost current account savings account (CASA) accounts, an average of more than 2.5 lakh accounts per month. This has been its highest quarterly addition.

“CASA continues to be in focus for the last couple of years. Obviously, with such a high jump in the last one or two quarters, our aim will be to maintain consistency in these numbers and grow from here,” said Gupta.

Elaborating on the bank’s growth strategy in the coming quarters, Gupta said that Fino operates on an ‘ABC’ model — acquire customers, build on balances and cross-sell products like mutual funds and insurance.

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Vision for payments bank industry

The RBI issued in-principle payments bank licences to 11 entities in 2015. Final licences were given in 2016 and 2017. Of those, only six are operating at present: Airtel Payments Bank, Paytm Payments Bank, India Post Payments Bank, Fino Payments Bank, NSDL Payments Bank and Jio Payments Bank.

Gupta said while the industry has seen its share of ups and downs, some payment banks have emerged as stronger entities. Hence, if regulation can open up avenues for payment banks to service customers by offering credit and make business models more viable, it will only help, he said.

Another game-changer for the industry would be increasing the deposit threshold to more than Rs 2 lakh, which will help payments banks target a better set of customers and not be handicapped by any limit, the MD added.