Inside Fino Payments Bank’s Troubles And Transition To A Small Finance Bank

Why It Matters

Fino’s struggles highlight regulatory and operational risks for payments banks, while its potential shift to a small finance bank could reshape lending dynamics in India’s underserved markets.

Key Takeaways

• Net profit fell 43% YoY to ₹52.5 Cr (~$6.3 M) in FY26.
• Digital payments revenue dropped 70% YoY to ₹40.5 Cr (~$4.9 M).
• CEO Rishi Gupta arrested, prompting UPI merchant shutdown.
• RBI approval pending for conversion to small finance bank.
• CASA deposits hit record ₹2,957 Cr (~$356 M), boosting low‑cost funding.

Pulse Analysis

Payments banks were introduced by the RBI to extend basic banking services to India’s semi‑urban and rural population. Fino Payments Bank built its model around a 20‑lakh‑strong merchant network that acted as human ATMs, amassing 1.75 Cr CASA customers. However, the sector’s reliance on non‑lending activities made it vulnerable when regulatory changes—such as the 2024 RBI circular that curtailed bank‑led remittances—hit core revenue streams. Coupled with a slowdown in NBFC and micro‑finance activity, Fino’s cash‑management and transaction volumes contracted sharply, driving a steep profit decline.

The arrest of CEO Rishi Gupta in February intensified scrutiny. Gupta’s detention followed a GST investigation linked to real‑money gaming merchants, prompting Fino to suspend its UPI payments‑and‑QR‑merchant (PQM) platform. The digital payments segment, once a key growth engine, saw revenue tumble 70% YoY and active merchants fall from 347 to 229 within three months. This operational pause not only erodes short‑term earnings but also deprives the bank of valuable transaction data that could feed future credit underwriting once it becomes a small finance bank.

Despite the headwinds, Fino’s conversion to a small finance bank (SFB) could unlock a new revenue frontier. The bank reported a record ₹2,957 Cr (≈$356 M) in CASA deposits, delivering a sub‑2% cost of funds—significantly lower than typical SFBs. Management envisions an asset‑light lending model focused on secured loans, targeting a 20% ROE by FY30. If RBI grants the SFB licence, Fino could leverage its extensive merchant network to source low‑cost deposits and loans, potentially reshaping competition in India’s underserved credit market. The coming months will reveal whether regulatory confidence returns and if the bank can rebuild its digital ecosystem to support sustainable growth.