Fino’s Transition Faces a Test of Stability

Late on Friday, Fino Payments Bank informed stock exchanges that its Managing Director and Chief Executive Officer, Rishi Gupta, had been arrested in connection with a Goods and Services Tax investigation involving one of its business partners. The bank said its Chief Financial Officer would oversee operations in the interim and maintained that the institution and its leadership were not involved in the partner's alleged actions.

Subsequent reports have linked the probe to Wegofin Digital Solutions, and an alleged illegal online gaming-fintech network said to involve around ₹50 billion. Investigators had earlier sought information from the bank, and senior management, including Gupta, had participated in those discussions.

The arrest, however, came at a sensitive juncture.

In December 2025, the Reserve Bank of India granted Fino an in-principle approval to transition into a small finance bank. The decision was unprecedented. No other payments bank has so far been found eligible for such a shift. The move effectively positioned Fino as a test case for whether a narrowly scoped payments institution can evolve into a lender without destabilising its franchise.

That transition requires not just capital and compliance but also demands institutional continuity, regulatory confidence and market trust. Small finance banks operate under tighter prudential expectations than payments banks, including credit underwriting, asset-liability management and risk governance disciplines that are structurally different from a payments-only model. At such a moment, stability in leadership is paramount.

The payments bank model itself has struggled for durability. Several licence holders exited early or scaled back ambitions. Paytm Payments Bank remains under restrictions and is unable to undertake fresh customer business. Against that backdrop, Fino’s progression was seen as an affirmation that a payments-focused franchise could build sufficient operational credibility to graduate into credit intermediation.

For that reason, the timing of Gupta’s arrest could hardly have been more awkward.

He had been approved for a fresh three-year term beginning May, signalling regulatory comfort with continuity at the helm. Any disruption at the top inevitably invites questions about execution risk.

In banking, perception risk often travels faster than legal process.

An arrest, irrespective of its eventual outcome, raises questions among all stakeholders, including depositors, counterparties and investors about governance controls, partner due diligence and operational safeguards. Where the alleged misconduct relates to a technology partner and the possible use of banking infrastructure, the implication, fairly or otherwise, is that systems may have been proximate to activities that fall foul of the law. That is reputationally combustible, especially for a bank seeking to expand the remit of its licence.

None of this prejudges the facts of the investigation. Enforcement action is a legitimate and necessary component of financial supervision, particularly in areas such as online gaming and fintech, where regulatory arbitrage and tax evasion risks are real. The law will proceed on its own evidentiary foundations.

Yet markets operate on expectations, not verdicts. The interval between allegation and adjudication can shape institutional trajectories.

India’s recent history has shown that arrests of senior banking executives, even where eventual findings have not sustained the harshest allegations, can leave scars that outlast the legal process. By the time clarity emerges, reputations may already have been impaired and institutions forced into defensive postures. The sector’s experience suggests that while accountability is essential, the sequencing and communication of enforcement actions matter for financial stability.

For Fino, the near-term task is clarity. Transparent communication with investors, depositors and the regulator will be essential to contain speculation. The bank must articulate the extent of its exposure, the robustness of its internal controls and the continuity of its transition roadmap.

Silence or ambiguity would amplify uncertainty in an already delicate phase.

There is also a broader institutional question. Investigative agencies are tasked with enforcing the law, often in complex digital ecosystems where financial flows intersect with technology platforms. Banking decisions, however, are taken within layered compliance frameworks, delegated authority structures and documented processes. In such circumstances, the RBI's fit and proper criterion for senior management can operate as a Damocles’ sword, because even the shadow of ongoing proceedings may compel supervisory scrutiny irrespective of eventual judicial outcomes.

The interface between criminal investigation and regulated finance, therefore, demands a degree of calibration lest enforcement risk inadvertently translate into systemic risk.

The broader question is whether India’s evolving financial architecture can absorb episodic shocks without derailing long-term reform objectives. The payments-bank-to-small-finance-bank pathway was designed to encourage graduation based on performance and compliance. If that pathway is to remain credible, transitional institutions will require both rigorous scrutiny and calibrated stability.

Fino’s challenge now is not merely legal; it is institutional. The investigation will run its course. What will determine the bank’s trajectory is whether confidence can be preserved during that course. In financial services, continuity is often as critical as capital.