Fino Payments Bank Moves Closer To Initial Public Offering

The Mumbai-based payments bank is looking to raise close to Rs 1,000 crore through an IPO that is likely to hit the markets in the next six months, according to three people aware of the development, who spoke on condition of anonymity.

"There may be an IPO for the bank, but nothing can be confirmed on that yet," Rishi Gupta, managing director and chief executive of the company told BloombergQuint over a call. The process, he said, can develop over a period of time.

A wholly-owned subsidiary of Fino Paytech Ltd., the company secured its license to carry on the business of payments bank from the Reserve Bank of India in 2017. Currently, only six payments banks are operational in India, including Paytm Payments Bank, Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank and NSDL Payments Bank.

Fino Payments Bank has been making a small profit for the last three quarters. For the July-September 2020 period, the company reported a profit of Rs 4.5 crore, more than double the Rs 1.9 crore profit it made in the previous quarter.

As a payments bank with a physical presence, it offers products including micro-ATM services, Aadhaar-enabled payment system (AePS) transactions, remittances, payment services partnerships, business correspondent banking, current and savings accounts, cash management services and third-party products like insurance and gold loan referrals for partner banks and insurance companies.

During the September quarter, the company facilitated transactions worth Rs 33,000 crore, of which domestic remittances contributed 25%, micro ATM/AePS withdrawals comprised 38% and payment services formed 11%.

As of September, it had 5.5 lakh banking points, including 2.5 lakh points through its banking partners and 8,000 Bharat Petroleum Corp.'s outlets. It looks to increase its banking network to 10 lakh such points in three years, the company said in a Nov. 25 press release.

The Fino Payments Bank IPO would largely be a secondary share sale to give partial exits to its existing investors, while there may be a small component of fresh issue, according to one of the persons cited above. The company is in the process of appointing bankers to manage the IPO, the person said.

Incorporated in 2006 to develop banking technology solutions for financial inclusion, Fino Paytech is an associate subsidiary of the state-owned Bharat Petroleum that holds 28.82% stake in the company. Besides Fino Payments, it also runs a non-deposit taking non-banking financial company Fino Finance Pvt. that specialises in giving micro loans to women in rural areas based on the joint liability group model.

Further, it counts banking and insurance firms, including ICICI Prudential Life Insurance Co., Life Insurance Corporation of India, Exide Life Insurance Co., ICICI Lombard General Insurance Co., ICICI Bank Ltd., Indian Bank Ltd., Corporation Bank Ltd., Union Bank Ltd. and development financier International Finance Corporation, as its shareholders. Private equity firms Blackstone and HAV3 Holdings also hold nearly 8% stake each in the company.

“It comes as no surprise that 2021 could be the year for India's technology IPOs, especially as the ongoing pandemic has increased the focus on digital adoption," said Ajay Garg, founder and managing director at mid-market investment banking and private equity firm Equirus Capital.

The recent success of IPOs by technology firms such as Route Mobile Ltd., Happiest Minds Ltd. and CAMS Ltd. has reiterated the interest and acceptance for such companies among investors.

"The time for a payments bank IPO is ripe as digital payments have seen an unprecedented rise over the last year, and a profitable company of reasonable scale in that space will generate significant interest,” Garg said.

Plans To Convert Into A Small Finance Bank

Having completed three years as a payments bank, Fino Payments Bank is also considering conversion to a small finance bank once the RBI guidelines on the same are out, according to the second person cited above.

This, as an internal working group constituted by the banking regulator recommended lowering the existing five-year threshold for setting up a small finance bank.

As of now, a payments bank can take demand deposits only up to Rs 1 lakh per customer by investing 75% of their deposit balance in government securities or treasury bills with maturity up to one year. From the remaining 25%, the payments banks can also invest in certificate of deposits.

However, Fino Payments' plans to convert to a small finance bank may take longer as the regulations are yet to be formed, while the listing may happen before that as the company wants to ride the IPO wave for technology firms, the third person cited above said.

But the decision to list first and then convert into a small finance bank may not be a good one, as it would lead to a complete change in their business model and any failure because of that will not be taken kindly by the markets, the person said.