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Fino Payments Bank Ltd

| Q3 FY 2026 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤3rd Feb 26

Summary : Fino Payments Bank is transitioning to an SFB, leveraging its low-cost CASA and merchant network for secured lending, while navigating current revenue moderation and regulatory scrutiny.

Management Perspective positive : This development is a key inflection point as we position the franchise for its next phase of growth. We expect that with this big two transitions, which we are now done with, this will take us to a different level in the next one or two years.

Concall Report Analysis & Insights

Business Overview

  1. Received in-principle RBI approval to transition into a Small Finance Bank (SFB).
  2. Maintains a strong CASA-based liability of Rs. 2,500 crores, totaling Rs. 3,000 crores in low-cost deposits.
  3. Q3 FY26 total throughput was Rs. 1.18 lakh crores, with 9M FY26 at Rs. 3.56 lakh crores (8% Y-o-Y growth).
  4. Digital throughput increased 31% Y-o-Y, now comprising 55% of total throughput.
  5. Higher-margin CASA and renewal income streams contribute 41% of total revenue.

Future Growth Prospects

  1. SFB license enables new revenue streams and deeper customer relationships for financial inclusion.
  2. Aspiration to scale the loan book to Rs. 8,000-10,000 crores by FY2030, with prudent growth.
  3. Targeting a +20% ROE in the medium term, driven by low cost of funds and disciplined credit.
  4. Merchant-led ecosystem will drive credit offering and sourcing with lower acquisition costs.
  5. New Finacle core banking system provides a flexible and scalable technology backbone.

Management Insights

  1. SFB transition is a key inflection point, positioning the franchise for its next growth phase.
  2. Focus remains on sustainability and scalability over short-term volume-led growth.
  3. Aim to maintain a Net Interest Margin (NIM) of 10% on a largely secured lending portfolio.
  4. Expect credit costs to remain below 1% as the loan book scales.
  5. Heavy lifting on technology costs is complete; additional SFB tech stack needs Rs. 100 crores.

Signs of Skepticism

  1. Digital payment growth is contingent on future regulatory directions and environment changes.
  2. Detailed operational costs and CapEx for SFB business in FY2028 are not yet fully outlined.
  3. Achieving 30% CAGR for CASA growth on a higher base might be challenging.
  4. LCR estimates for the SFB model were not projected despite questions on deposit volatility.
  5. Specific product mix percentages and year-wise loan book breakup are still evolving.

Risk Factors

  1. Regulatory tightening and scrutiny impacted digital payments revenue in Q3 FY26.
  2. CMS segment faces moderation due to pricing competition and structural shifts.
  3. Traditional transaction business declined 14% due to ecosystem shift towards digital channels.
  4. Remittance revenues moderated significantly, declining 50% Y-o-Y in Q3 FY26.
  5. Temporary revenue moderation impacted the cost-to-income ratio in Q3 FY26.

Good To Know

  1. Added over 8.7 lakh accounts in Q3, bringing total accounts to 1.68 crores.
  2. Average CASA balance improved 9% year-on-year to Rs. 1,314.
  3. Digitally active customers grew 22% year-on-year to nearly 60 lakh.
  4. Renewal income grew 19% year-on-year to Rs. 57 crores, reinforcing stickiness.
  5. Q3 FY26 EBITDA stood at Rs. 63.9 crores, with margins improving to 16.2%.

Key Drivers

  1. RBI approval for SFB transition.
  2. New lending business to scale.
  3. Leveraging merchant ecosystem.
  4. Advanced technology platform.

Key Analyst Discussions

Competitive Environment

  1. CMS business faces competition, impacting take rates but not client retention.
  2. The bank's merchant-led, asset-light model is a key differentiator among SFBs.
  3. No major revenue partners have been lost due to competition in CMS.
  4. The ecosystem is shifting towards digital channels, impacting traditional transactions.

Market Trends & Consumer Behavior

  1. Increased regulatory scrutiny on digital payments affects merchant onboarding and transaction monitoring.
  2. Customers with lower deposits are primarily transactional, not sensitive to interest rates.
  3. Market trends show a shift from cash-based transactions to UPI and digital channels.
  4. Real money gaming ban and LEA scrutiny impacted digital payment volumes.

Financial Highlights

  1. CMS revenue declined sequentially due to lower take rates, not client loss.
  2. Q3 revenue was Rs. 394.4 crores, a 1% sequential and 15% Y-o-Y decline.
  3. EBITDA margins improved to 16.2% despite overall revenue moderation.
  4. Cost-to-income ratio was 33.1% in Q3, reflecting temporary revenue moderation.
  5. CASA renewal income declined Q-o-Q due to reduced direct benefit transfer inflows.

Product Composition

  1. SFB lending will focus on secured products: affordable housing, MSME, LAP, micro LAP, gold loans.
  2. Pilots for gold loans and affordable housing/LAP show healthy disbursement growth.
  3. The subscription-based CASA model will continue post SFB transition.
  4. Lending strategy emphasizes a phased, cautious approach, avoiding a 'rampage'.

Strategic Considerations

  1. SFB operationalization is targeted for Q4 FY2027 or Q1 FY2028, after RBI process.
  2. Incremental CapEx includes Rs. 100 crores for IT and Rs. 15 crores for infrastructure.
  3. SFB will leverage its merchant ecosystem for lead generation and AI for processing.
  4. Hiring for key SFB roles is underway, with top-level positions closing in 1-2 months.
  5. Lending through merchants will involve hub-level processing and staff verification for checks.