Fino is taking a cautious but ambitious step as it transitions into a small finance bank (SFB), with a clear focus on secured lending. Managing Director and CEO Rishi Gupta told Mint that the bank will prioritize loans against real estate (LAP), affordable housing, and some gold loans, while keeping unsecured lending strictly limited and targeted.
The Reserve Bank of India (RBI) approved Fino’s move to a small finance bank on Friday. Gupta emphasized that the bank will maintain a higher proportion of secured assets, steering clear of microfinance-heavy lending.
Beyond the lending strategy, Gupta sees this transition as a vote of confidence in Fino’s model and long-term viability. He highlighted the benefits: stability for employees, easier credit access for merchants, a differentiated SFB built on payments for investors, and a wider range of services for customers.
Even in unsecured lending, Fino is keeping a conservative approach. The bank plans small business loans for long-standing merchants, typically in the $5,000–$1 million range, focusing on measured growth rather than aggressive lending.
“We have a large network of merchants and customers, and this will be the first group we will reach out to. We know our merchants very well—their revenue, deposits, and transaction processes. This will be our focus area,” Gupta said.
Fino’s merchant network grew to 2 million in the September quarter, adding 56,000 new merchants, while average deposits jumped 36% year-on-year to ₹2,306 crore.
Regarding the first 12–24 months of lending, Gupta explained that the bank has selected key regions and focus areas, carefully planning the rollout.
Fino’s SFB blueprint relies heavily on the distribution network it has built over nearly two decades. Its commercial agent network, which is central to payments and deposits, will now be used to generate and partially fulfill loan leads.
What SFB Status Means for Fino
As a small finance bank, Fino can now offer services that payments banks could not—like fixed deposits and time deposits, which were previously capped by the ₹2 lakh savings limit.
The bank also plans to expand its low-cost deposits, currently around ₹700–800 crore annually, through its business agent network at a cost of approximately 2%.
Fino’s checking and savings accounts reached 16 million in September, with 910,000 new accounts added. That’s nearly 10,000 accounts opened daily, an 11% increase year-on-year. Its BC banking products also grew 5% YoY, generating ₹350 million in revenue.
However, Fino will need to partially scale down its commercial agency business, which currently accounts for 70% of revenue, to comply with SFB norms. The bank expects its broader liability and payments ecosystem to remain intact.
Revenue Model and Tech Focus
Unlike other SFBs heavily reliant on interest income, Fino already has a significant pool of non-fund income (₹1,500–1,800 crore). Gupta expects 75–80% of revenue over the next 3–5 years to come from transaction-led business, giving Fino an edge as its loan book grows slowly.
“We don’t want to be aggressive. We want to do the right thing, even at our own pace,” he said.
Technology and AI will form a second pillar of growth. Gupta explained that, without a legacy asset book, Fino will use technology and AI to scale operations, manage costs, and assess credit efficiently.
The bank also plans to maintain its signature low-cost structure, leveraging its business agents for variable-cost expansion, while AI and digitization reduce ground-level operating expenses.
Corporate hiring will grow in credit, risk, and product areas, but overall costs will increase only modestly. While Fino doesn’t need new capital for the initial years, Gupta might raise capital after two quarters to maintain a buffer as lending expands.
Timeline and Analyst Insights
Gupta said the regulatory conditions during the transition mostly relate to promoter conduct, not equity dilution, and he expects the shift to complete in 12–18 months.
Analysts note that Fino applied for an SFB license in December 2023 and has since been building tech infrastructure, liabilities, and piloting credit products like commercial loans, gold loans, and partnership-based loans.
Experts believe that Fino’s entry into lending will be cost-effective and smooth, leveraging its established network and tech platform.