RBI May Halt Fino's Small Finance Bank Conversion Plans

Fino Payment Bank's Conversion to SFB on Hold Amid CEO's Arrest

The Reserve Bank of India (RBI) may put on hold the in-principal approval granted to Fino Payment Bank for its conversion to a small finance bank (SFB) following the arrest of its MD & CEO, Rishi Gupta.

Gupta's Arrest

Rishi Gupta, the MD & CEO of Fino Payment Bank, was arrested on February 27 under the provisions of the Central and State GST Acts for allegedly supplying goods/services without an invoice and wrongful input tax credit (ITC) exceeding Rs 5 crore. This section attracts imprisonment up to 5 years and a fine.

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RBI's Investigation

The RBI has sought information from Fino Payment Bank regarding the alleged irregularities and the bank's involvement in the matter. The RBI may not allow the bank to convert from a payments bank to an SFB until clarity emerges on the bank's involvement in the alleged malpractices.

KYC Lapses

Sources indicate a possible lapse in adherence to know-your-customer (KYC) regulations, which may have resulted in prolonged non-compliance. The RBI has called for details from the bank, and initial feedback suggests inadequate compliance, particularly with respect to third-party transactions.

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Online Gaming Nexus

The Directorate General of GST Intelligence (DGGI) is investigating GST evasion by Fino Payments Bank, which is suspected of using shell companies and payment aggregators to funnel illicit funds generated by online money gaming. The investigation has revealed the involvement of Rishi Gupta and other senior bank functionaries in the fraud.

Financials

Fino Payment Bank's net worth stood at Rs 799 crore and deposits at Rs 2,500 crore in the December FY26 quarter.

Stock Exchange Disclosure

Fino Payment Bank has stated that the issue is related to a GST investigation pertaining to program managers who have relationships with other banks, including Fino. The bank has appointed Ketan Merchant, CFO, as the Head of the Organization to oversee the day-to-day operations in the absence of Gupta.