RBI grants ‘In-principle’ Approval to Fino Payments Bank Limited for conversion into a Small Finance Bank — what it means for customers

The Reserve Bank of India (RBI) has granted in-principle approval to Fino Payments Bank Limited (FPBL) to convert itself into a Small Finance Bank (SFB). The approval opens the door for Fino to expand its product offerings, scale lending operations and transition from a restricted payments-bank model to a full-service small finance institution.

The central bank announced the approval on Friday, December 5, through an official release, stating that FPBL’s application had been assessed under the “on-tap” licensing guidelines that govern the formation of Small Finance Banks in the private sector.

Why the approval marks a turning point for Fino?

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Fino Payments Bank, known for its extensive distribution network and strong rural presence, has so far operated under the limitations imposed on payments banks — including the inability to lend and a cap on deposit size.

Conversion into an SFB will allow the bank to enter lending segments, deepen its customer relationships and broaden its financial inclusion footprint. Industry observers see this approval as an important and expected step in Fino’s long-term strategy, particularly given its scale, technology-led model and strong presence across low-income and underserved markets.

How the RBI assesses conversion requests?

The approval comes under RBI’s “on-tap” licensing framework for Small Finance Banks, which permits eligible entities to apply at any time. According to the guidelines, only payments banks that:

• Are controlled by Indian residents, and
• Have completed at least five years of successful operations

can seek conversion into an SFB.

RBI said FPBL’s application had been evaluated as per the procedure laid down in the guidelines, and that an in-principle approval has now been issued. The bank will need to meet further conditions and regulatory requirements before receiving a final licence.

What is a Small Finance Bank?

A Small Finance Bank is a specialised institution designed to promote financial inclusion by serving small businesses, unorganised-sector entities, farmers and low-income households.

Unlike payments banks, SFBs can:

• offer loans across retail, MSME and agriculture segments
• accept all types of deposits without restrictions
• issue credit cards, micro-loans and other credit products
• operate as full-service banks while focusing on inclusion-led sectors

SFBs are also required to maintain stronger priority-sector lending ratios than traditional commercial banks, ensuring credit flows to underserved segments.

What changes for customers if Fino becomes an SFB?

Once Fino completes the required transition processes and receives a final licence, customers may see several key changes:

• access to loan products for the first time
• the ability to maintain higher deposit balances
• more comprehensive financial services offered through Fino’s large network
• stronger integration of technology-led banking tools

For now, the bank will continue to operate under its existing payments-bank licence until the conversion is completed.