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MUMBAI : The ability to lend would speed up growth for Fino Payments Bank and unshackle it from the existing dependence on partners for credit products, chief executive Rishi Gupta said.

Introduced during the tenure of former Reserve Bank of India (RBI) governor Raghuram Rajan, payments banks are supposed to reach out to the under-banked and unbanked masses, accepting deposits of up to 2 lakh per customer. They are not allowed to lend.

“Now, we have to depend on partners and their products to be delivered to our customers and there is a lot of friction on account of that. We cannot control the products nor the pricing," Gupta said in an interview.

Gupta said that having in-house lending products would allow the bank to do more justice to consumers. While lending can definitely aid Fino grow faster and bigger, it has its own set of challenges, he said. To be sure, having completed five years of operations, the bank has the option to apply to the regulator for conversion into a small finance bank, a category with more elbow room than payments banks.

“Right now, we are in a sweet spot and as a payments bank, have the opportunity to convert to a small finance bank. We will have to see how we want to look at that opportunity. For us, the payments bank is the main business and a transaction-focussed one," said Gupta.

For Fino, Gupta said, any potential conversion to a small finance bank would be seen as an add-on to what the payments bank already does. It would allow the bank to garner more deposits and, of course, lend. When the payments bank model was conceived, the market was different and changes have taken place in the model and in the market since then, he said.

“Initially, there were questions as to how the model would work since there is no lending and if it would be able to sustain itself over a period of time. To a large extent, those questions have been answered now," said Gupta.

According to him, payments banks have to ensure that operational costs are low while volume of business is high, to make up for low margins on transactions. The velocity of business has to be high and only then could one make money on a low margin, Gupta said.

“In the last few years, fintechs and others have also come and begun competing with payments banks; so, from that point of view, Fino’s journey has been quite rewarding, not only because we were the first payments bank to turn profitable, but also the first and the only one to do an initial public offering," he said.

In the June quarter of FY23, Fino Payments Bank reported a net profit of 10 crore, up from 3 crore in the same period last year. In a statement on 27 July, it said its penetration deepened further as registered merchant count increased by 58% year-on-year to 1.14 million. Its total deposits grew 131% y-o-y to 581.53 crore as on 30 June 2022.

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