Fino Payments Bank has been a designated as a bank in the Second Schedule to the Reserve Bank of India Act, 1934, the Reserve Bank of India (RBI) said on Thursday. By categorising Fino in the second schedule of the RBI Act, the payments bank now has a scheduled commercial bank status giving it the powers to expand its treasury operations and access to liquidity windows.
Fino is one of the only successful payments banks in the country, having broken even in the first-half of this fiscal while other payment banks continue to report losses. For the June to September 2020 quarter, the bank posted its second consecutive net profit at Rs 1.9 crore compared to a net loss of Rs 10.9 crore during the same period a year ago. It posted its first net profit of Rs 1.3 crore in the January to March quarter of 2020. The commercial bank status effectively gives Fino access to government business, it can become a member of a clearing house, in addition to the RBI’s liquidity window
The bank says that with a scheduled commercial bank status, it will be better positioned to grab some government business services, related to pensions, provident funds and various welfare schemes under direct benefit transfer (DBT). The company plans to process Rs 60,000 crore worth of transactions in the first half of the next fiscal year, up by 36% from Rs 44 000 crore during the same period last fiscal. As of March 2020, Fino PB had mobilsed over ₹222 crore in savings deposits, it said in a press release
“It provides strategic impetus for Fino Payments Bank to enhance its scope on balance sheet management and explore additional avenues for business. We are keen to capitalise on the growth opportunities that exist within the regulatory guidelines and build on the momentum of consistent profitability achieved last fiscal,” said Rishi Gupta, managing director and chief executive officer, Fino Payments Bank.
The bank has over 5.5 lakh consumer touch points and processed over Rs 12,500 crore transactions every month. It aims to expand its network to 10 lakh points by 2023.
According to BloombergQuint, the bank could be looking to raise Rs 1,000 crore through an initial public offering in the next six months or so. Alternatively, it can look to convert to a small finance bank under the RBI’s licensing guidelines. Recently, a RBI internal working group recommended that payments banks (PB) be allowed to convert to a small finance banks after a period of three years of operations. This is a relaxation of norms set by the RBI in its on-tap licensing guidelines for SFBs, which stated that PBs could convert after completing five years of operations. Fino was set up in 2017, therefore it qualifies to convert to a small finance bank in the coming year as per existing guidelines. If the working groups’ reccomendations are accepted by the central, Fino’s conversion to a small finance bank can take place sooner.
The idea for PBs stems from an RBI discussion paper which stated that a differentiated licensing regime could be brought in to develop and nurture specialised banks in niche areas. Thereafter, in 2014 the Nachiket Mor committee recommended that PBs be set up primarily to provide payment services and deposit products to small businesses and low-income households across the country. In 2015, the RBI gave in-principle approval to 11 entities to set up a PB. However, five years later only six of these entities continue to operate as PBs, including Paytm Payments Bank, Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank and NSDL Payments Bank.
Despite several years of operations and a multiple partnerships between financial services companies, like insurers, credit card companies and mutual fund houses, PBs were loss making entities due to the high cost of operations, the RBI said in its Report on Trend and Progress of Banking in India 2018-19. PBs made a net-loss of ₹626.8 crore in FY2019 compared to a net-loss of ₹515.6 crore in FY2018. The seven operational PBs, at the time, had garnered around ₹883 crore in deposits in FY2019 compared to ₹438 crore in the previous year.
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