Fino Payments Bank is set to become the first payments bank to transition to a small finance bank.

The Reserve Bank of India (RBI) said Friday it has granted 'in-principle' approval to Fino Payments Bank to convert into a small finance bank (SFB).

By becoming a SFB, Fino will be able to offer a wide range of financial services, including on-balance sheet lending. Under RBI’s rules, payments banks cannot lend and cannot accept more than Rs 2 lakh from each depositor. Fino’s rivals, including Airtel Payments Bank, Jio Payments Bank and India Post Payments Bank, are limited to investing deposits in government securities or bonds.

Fino Payments Bank, which started operations in 2017, had applied for a small finance bank licence in October-December 2023.

The lender had applied under the RBI’s 'on tap' licensing guidelines norms for a SFB.

According to the guidelines, existing payment banks which are controlled by residents and have completed five years of operations are eligible for conversion into SFBs. They must have a minimum paid-up voting equity capital or net worth requirement of Rs 200 crore.

Fino is the first payments bank to turn profitable in 2020 and the first to be listed on bourses in 2021.

Fino kicked off in 2006 as a payments technology company and gradually started delivering services under the government's direct benefit transfer (DBT) services to the beneficiaries.