Shares of One97 Communications, parent of Paytm, on Thursday gained almost 3.50 per cent amid reports that its arm is likely to apply for a small finance bank (SFB) licence.

On the BSE, the Paytm scrip ended at Rs 775.85 — a rise of Rs 26.15, or 3.49 per cent, in an otherwise firm market that saw the benchmark indices rising around 1.50 per cent. Earlier, a Moneycontrol report said that Paytm Payments Bank is likely to apply to the Reserve Bank of India (RBI) for an SFB licence by June.

This is not surprising as founder Vijay Shekhar Sharma had alluded to such a possibility in November last year. Speaking at an event then, he had said the conversion into an SFB will help it solve several payment problems apart from also providing more services to its customers.

According to the RBI’s guidelines for on-tap licensing of small finance banks in the private sector, existing payments banks (PBs) which are controlled by Indians and have completed five years of operations are also eligible for the conversion after complying with all legal and regulatory requirements of various authorities. Paytm Payments Bank had got the RBI licence in 2017. According to the company’s website, it has over six crore bank accounts.

One of the key plus points for an SFB is that they can lend, unlike payment banks who have a tough business model.

As per the RBI norm, the objectives of setting up of small finance banks will be for furthering financial inclusion by provision of savings vehicles primarily to unserved and underserved sections of the population, and supply of credit to small business units, small and marginal farmers, micro and small industries, and other unorganised sector entities, through high technology-low cost operations.