The transition will be a cautious one with a focus on secured lending, primarily loans against property (LAP), affordable housing, and, to some extent, gold loans, managing director and chief executive officer Rishi Gupta told Mint in an interview. Unsecured lending will be strictly limited and targeted, he added.
Following the RBI’s approval on Friday, the bank will look at a higher proportion of secured assets as compared to unsecured assets, adding that it is not very keen to work on the microfinance institutions’ lending space.
Beyond new products and portfolios, Gupta sees the SFB approval as a broader validation of Fino’s model and long-term viability: it gives employees stability, opens credit access for merchants, offers investors a differentiated SFB rooted in payments, and expands the range of services for customers.
Even within unsecured lending, Fino Payments Bank plans to restrict itself to small business loans for its long-existing merchants, typically in the ₹5-10 lakh range. Gupta said he wants to focus on calibrated growth rather than reckless lending.
“We have a big network of merchants and customers which will be our first set of people to go to…We understand our merchants well, with their income, their deposits, their transaction flow. That will be our focus area,” he said.
Fino’s merchant network grew to 2 million, with 56,000 merchants added in the quarter ended September. Average deposits rose 36% on year to ₹2,306 crore during the quarter.
When asked about the bank’s loan book strategy in the first 12-24 months, Gupta said that they are working on some numbers, have selected a few geographies, and identified pockets where they will focus.
Fino’s small finance bank blueprint leans heavily on its distribution network built over nearly two decades. The bank’s business correspondent network, which is central to its payments and deposit franchise, will now be upskilled to generate and partially fulfil lending leads.
Next act
The small finance bank will have multiple benefits that a payments bank cannot offer, including the removal of the ₹2 lakh cap on savings balances, which will allow Fino to offer fixed and recurring deposits.
Fino’s existing liability franchise, mobilising ₹700–800 crore of low-cost deposits annually at around 2% cost will be scaled further through its business correspondent network.
Fino’s current and savings accounts reached 16 million in the September quarter, with 910,000 new accounts added. It opened 9,893 accounts per day, up 11% year-on-year. Its BC banking product grew 5% on year and generated revenues of ₹35 crore.
While the business correspondent business, which brings nearly 70% of revenues currently, will need partial divestment to meet small finance bank norms. Fino expects the broader liability and payments ecosystem to remain intact.
Unlike other SFBs that rely heavily on interest income, Fino begins with a sizeable non-fund-based income pool of ₹1,500–1,800 crore.
Gupta expects that 75–80% of the bank’s revenues will continue to come from transaction-led businesses over the next three to five years. This, he believes, will give Fino an advantage as it builds its loan book slowly.
“We don’t want to be aggressive. We want to do the right thing, even at our own pace,” he said.
Technology and artificial intelligence will be the second major pillar. “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 said.
Fino plans to maintain its hallmark low-cost structure and the business correspondent network ensures variable-cost-driven expansion on both liabilities and assets, while AI and process digitalisation will reduce on ground-level operating expenses further.
He also said that corporate hiring will rise in areas like credit, risk and product, but overall costs will grow modestly.
While Fino does not require fresh capital to begin operations or even for the first few years, Gupta said he might think about fundraising after two quarters to maintain surplus buffers as lending expands.
Regulatory conditions for the transition period relate largely to promoter-level corporate actions rather than shareholding dilution, he said, adding that he expects the transition to be completed within 12–18 months.
Analysts believe that the payments bank, which had applied for an SFB licence in December 2023, has since been working on the process of building the technology, liability, and doing some pilots around credit, like merchant loans, gold loans, as well as a partnership-based lending portfolio.
They also believe that Fino’s entry into the lending business is set to be both cost-effective and smooth, leveraging its established merchant network and existing technological infrastructure.
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