In a significant development for India's banking sector, Fino Payments Bank has secured a transformative green light from the Reserve Bank of India (RBI). The regulator granted an in-principle approval on Friday, 6th December 2025, allowing Fino to transition into a Small Finance Bank (SFB). This move marks the first instance of a payments bank graduating to an SFB, heralding a major expansion of its business scope with a distinctly cautious and secured approach.
A Strategic Pivot Towards Secured Assets
Outlining the bank's future roadmap, Managing Director and CEO Rishi Gupta emphasised a deliberate shift in lending strategy. The core focus will be on building a portfolio dominated by secured assets, consciously moving away from unsecured lending. The primary products driving this new chapter will be loans against property (LAP), affordable housing finance, and gold loans.
Gupta clarified that any unsecured lending would be highly targeted and limited. Specifically, Fino plans to restrict its unsecured offerings to small business loans for its existing merchant network, typically in the range of ₹5 to ₹10 lakh. "We understand our merchants well, with their income, their deposits, their transaction flow. That will be our focus area," Gupta stated, underscoring a philosophy of calibrated growth over reckless expansion.
Leveraging a Robust Foundation for Future Growth
The transformation into an SFB unlocks several advantages previously unavailable to a payments bank. Most notably, the ₹2 lakh cap on savings account balances will be removed, enabling Fino to offer fixed deposits and recurring deposits. This will further bolster its already strong liability franchise, which mobilises ₹700–800 crore of low-cost deposits annually at a cost of around 2%.
Fino's blueprint for success leans heavily on its extensive distribution network, built over nearly two decades. Its business correspondent (BC) network, comprising 2 million merchants (with 56,000 added in the September quarter alone), is central to this plan. This network will be upskilled to generate and partially fulfil lending leads, creating a seamless bridge between its payments legacy and new credit offerings.
Financially, the bank enters this new phase from a position of strength. Unlike typical SFBs reliant on interest income, Fino boasts a sizeable non-fund-based income pool of ₹1,500–1,800 crore. Gupta expects 75–80% of revenues to continue flowing from transaction-led businesses over the next three to five years, providing a stable base as the loan book is built methodically.
Technology, Capital, and the Road Ahead
Technology and Artificial Intelligence (AI) are earmarked as the second major pillar for scaling operations. "We have no legacy asset book. For us, technology and AI will become the mainstay of how we scale, manage costs and assess credit," Gupta explained. This digital-first approach, combined with its low-cost BC model, aims to keep operational expenses in check.
While the bank does not require immediate fresh capital to commence SFB operations, Gupta indicated that fundraising might be considered after two quarters to maintain surplus buffers as lending scales up. The entire transition process is expected to be completed within 12 to 18 months.
Analysts view Fino's entry into lending as a cost-effective and smooth progression. By leveraging its deep relationships with millions of merchants and a proven technological backbone, the bank is poised to carve a unique niche as an SFB with payments at its core, all while prioritising the safety of secured lending.
