Interview: Year 2023 will be big for payments banks, expect growth-supportive measures from RBI, says Fino Payments Bank CFO

Mumbai-based Fino Payments Bank is hopeful that the Reserve Bank of India (RBI) will relax operational guidelines for payments banks in 2023, thus giving these entities a more competitive edge. Payments banks were given permits by the RBI for the first time in 2016. Since then, they have carved out a space for themselves in the highly competitive Indian banking sector.

In an exclusive chat with Moneycontrol, the bank’s chief financial officer, Ketan Merchant, said he expects a fresh set of reforms and growth-supportive measures from the RBI for 2023.

Looking at the situation of payments banks today, all operational payments banks have been doing well as far as the primary goal—financial inclusion—is concerned. But there are a lot of things payments banks can explore only if certain guidelines are relaxed, Merchant said.

Merchant also spoke about business growth and a range of other issues. The bank logged a 32 percent revenue growth in the first half of fiscal year 2023 and has targeted a 25 percent growth for the year.

The CFO also spoke on the challenges payments banks faced in 2022. Edited excerpts:

How was 2022 for payments banks and what were the main challenges?

After the pandemic hit the country, in the last two years, we’ve seen growth coming to normal. Looking at all the operational payments banks in India, four out of six produced good profitable numbers. After working around the primary object of financial inclusion, payments banks have shown growth opportunities and have focused on expanding their ambit of services.

Looking at the challenges, there have been announcements by the regulators concerning the buy now, pay later (BNPL) model and dispersing limits of fintechs. Increasingly, a lot more checks and controls were institutionalised for fintechs.

But now we see that the regulators are going towards accepting fintechs and are working on a phased or progressive-wise process where they may bring fintech under the bigger umbrella of regulation. We await the regulations and changes.

What new initiatives did payments banks work on?

Given the regulatory scope, each bank worked and is working to create and expand its model with the environment and conditions we have.

Looking at the picture today, the extensive new merchant network ecosystem created by all the payments banks called the alternate banking channel (ABC) has found acceptance among the larger audience base of payments banks.

The pandemic changed the banking landscape from its roots and accelerated digital adoption, which was a major booster for the acceptance of the ABC ecosystem.

The flexibility payments banks offered through its merchant network was the major qualitative factor during and after the pandemic.

There were some regulatory measures we hoped for in 2022…
The fintech model of banking has paved the way for new-age digital banking and with the massive reach of payments banks, we had great opportunities to provide basic as well as other banking services.

Looking at 2022, the RBI largely viewed the fintech sector and payment banks with caution but also allowed some space for growth. But we expected relaxations on certain things on which we could have worked on such as product suites like FDs (fixed deposits), recurring deposits (RD) to our customers through our deep and wide merchant networks

2023 will be a major period for payments banks to look forward to…

We’ve seen in our case that growing numbers, expansion in financial inclusion, technological offerings—all have proven beneficial. Alongside, we’ve also witnessed how the consumer’s changing behaviour towards banking where they now opt for flexible banking services options has led to a ballooning of new customer numbers for payments banks.

Looking at some of the major FIs (financial institutions), namely banks and fintechs—they are constantly running to procure the same market and service share.

While one is constantly regulated, the other is an unregulated, getting undue advantage. This is a challenge similar to what payments banks face. Although the regulator has taken steps to ensure a level playing field, which is a positive sign, we hope for more inclusion in 2023 through changes in our licensing provinces and providing a level playing field with other FIs.

My top three expectations from RBI in 2023 are…

Relaxation in terms of end-of-the-day deposit from Rs 2 lakh to Rs 5 lakh, permission to provide micro credit to small borrowers and implementation of new licences for service expansion.

Payments banks have for long been demanding an increase in the end-of-the-day deposit limit. Looking at the growth aspects provided by payments banks and the RBI’s recent stance on the regulation and working of the fintech industry, we could see some action on this front.

An uptick in demand for short-term loans from small borrowers is seen in the market and we expect that the RBI would allow payments banks to work around a financial model for lending to such borrowers.

Pre-pandemic, payments banks survived on thin profits. Today, the scene is similar but the major difference is that banks have worked on their service models, particularly on the financial inclusion and flexibility front. We expect assistance from the RBI by granting further licences in expanding our product line.

Going forward, we are hoping for some regulatory measures from the RBI so that payments banks are on a level playing field with fintechs and banks.