Fino Payments Bank Becomes First to Receive RBI Nod to Transition into SFB

In a landmark development for India’s banking sector, Fino Payments Bank has become the first payments bank to receive the Reserve Bank of India’s (RBI) in-principle approval to convert into a Small Finance Bank (SFB). This move, announced on 5 December 2025, opens up new avenues for Fino to expand its operations beyond the limitations imposed on payments banks. The approval follows nearly two years after Fino submitted its application under the RBI’s ‘on tap’ licensing guidelines for SFBs.

What is a Payments Bank?

Payments banks are a category of banks introduced by the RBI to promote financial inclusion, especially for small businesses, migrant labourers, and low-income households. However, they are restricted from,

• Accepting deposits over ₹2 lakh per customer
• Offering loans or credit facilities
• Dealing in foreign exchange
• They can, however, offer basic services like mobile banking, ATM cards, bill payments, and fund transfers.

What is a Small Finance Bank (SFB)?

A Small Finance Bank is a full-service niche bank aimed at providing banking services to underserved segments, including,

• Small and marginal farmers
• Micro and small industries
• Unorganised sector entities

SFBs can,

• Accept any size of deposit
• Lend to individuals and businesses
• Offer all basic banking services

Operate under tighter financial inclusion mandates, including 25% of branches in rural areas

Eligibility for Transition

As per RBI’s guidelines for on-tap licensing of SFBs,

• A payments bank is eligible to apply for conversion into an SFB after completing five years of operations
• The bank must be controlled by Indian residents
• The application is assessed based on regulatory compliance, governance standards, and financial performance
• Fino, which began operations in 2017, met these conditions and applied under the specified framework.

Significance of the Approval

Fino’s transition to an SFB is significant for several reasons,

• It removes the cap on deposit limits, allowing Fino to attract larger savings from customers
• It enables the bank to offer credit, a major limitation under the payments bank model
• Expands Fino’s service portfolio, helping it better compete with traditional banks
• Enhances financial inclusion by targeting credit delivery to underserved segments
• Sets a precedent for other payments banks to consider SFB conversion

This approval signals RBI’s confidence in Fino’s operational stability and governance, and supports the regulator’s vision for deepening rural and small-scale banking access.

Strategic Implications for Fino

As an SFB, Fino will be able to,

• Serve a wider customer base
• Diversify revenue sources by entering the lending market
• Strengthen its digital infrastructure and branch network
• Fulfill regulatory mandates by setting up 25% of its branches in unbanked rural areas

This transformation is expected to boost Fino’s long-term growth and profitability by enabling it to function as a full-fledged bank.

Static Facts

• Bank: Fino Payments Bank
• Approval: In-principle RBI nod to convert into Small Finance Bank
• Date of announcement: 5 December 2025
• Operations started: 2017
• Eligibility for SFB conversion: Minimum 5 years of operations, Indian ownership
• RBI Guidelines: ‘On Tap’ Licensing of SFBs (private sector)
• SFB Mandate: 25% branches in unbanked rural centres