Paramedics treated 21 people at the scene, an ambulance spokesman said. Most suffered breathing problems but five have serious burns.
"Police responded to reports that a man had allegedly set fire to a Springvale Road bank," Victoria state police said of the incident in the Melbourne suburb.
"The man has been taken to hospital in a serious condition under police guard."
Eric Sleuriot, who was nearby, told the Melbourne Age newspaper: "It's bloody awful. I just can't believe it."
"We are working closely with local authorities and emergency services," it said in a statement.