Fino Payments Bank shares fall 7% despite RBI nod to SFB transition

Shares of Fino Payments Bank are trading as much as 7% lower on Monday, December 8, despite the lender receiving in-principle approval from the Reserve Bank of India (RBI) to convert into a Small Finance Bank.

This clears the first major regulatory hurdle for Fino, positioning it to become the first payments bank in the country to transition into a full-fledged SFB.

The bank, which began operations with a payments bank licence in 2017, will continue to function in its current form until it secures final approval and begins SFB operations.

The conversion marks a major shift in Fino's business model. As an SFB, it will gain the ability to lend, accept unrestricted deposits and operate as a full-service bank.

It will also receive general permission to open branches and outlets from the first day of SFB operations.

However, the regulatory framework brings new obligations. At least 25% of its outlets must be in unbanked rural centres within a year, and the bank must reach a minimum net worth of ₹300 crore within 18 months.

Fino will be required to maintain 15% capital adequacy, with a Tier I ratio of 7.5% and Tier II capped at 100% of Tier I.

Promoters must retain 40% equity for the first five years, reducing to 26% within 15 years.

The bank will come fully under all banking requirements, including the cash reserve ratio and statutory liquidity ratio.

It must also follow priority sector lending rules, where 60% of its adjusted net bank credit or credit equivalent of off-balance-sheet exposures goes toward priority sectors. Additionally, half of its loan book must comprise loans of up to ₹25 lakh.

Shares of Fino Payments Bank settled 3.13% higher on Friday at ₹313. The stock has gained 15% in the last one month.