FINOPB - Fino Payments Bank Limited Share Price

Management's outlook for Fino Payments Bank in Quarter 2 FY '26 reflects a cautious approach amid a challenging regulatory environment. CEO Rishi Gupta noted an ongoing focus on stabilizing core business operations while anticipating a gradual recovery in digital payments by the end of Quarter 3 FY '26. The long-term digital payment landscape remains optimistic, with a projected growth from 200 billion transactions in FY '25 to an estimated 500 billion by FY '29.

Key forward-looking points include:

1. Digital Payments Recovery: A moderation in throughput due to enhanced regulatory scrutiny is expected to clear up, with a gradual pickup in volumes anticipated by Q3 FY '26.

2. CASA Growth: The bank added over 9 lakh CASA accounts, with deposits increasing 36% year-on-year to INR 2,306 crores. CASA revenue rose 21% to INR 159 crores, now contributing 40% of total revenues and yielding a margin of 54%.

3. EBITDA Margins: The EBITDA margin improved to 15.4%, a significant increase of 284 bps YoY and 180 bps QoQ, signaling operational efficiency despite top-line revenue challenges.

4. Small Finance Bank (SFB) License: The management expects to receive regulatory approval soon, with plans to leverage existing networks for future lending capabilities. SFB transition aims to double net interest margins focusing on deposit yields.

5. Core Banking Migration: The bank is near completing migration to a new core banking system by the end of 2025, promising better operational efficiency and product offerings.

6. Technological Investment: With a capex of around INR 70 crores in H1 FY '26, ongoing investments in technology are aimed at enhancing system efficiency and customer experience.

7. Growth in New Products: The introduction of new digital offerings, including a prepaid instrument and payout product, is expected to generate substantial revenue once all regulatory approvals are secured.

In summary, while Quarter 2 faced obstacles, the management remains optimistic about a return to growth and continues to emphasize profitability and the establishment of a more resilient business model.

Q&A Section Summary

Q1: Can you elaborate on the FinoPay business and festive season demand for B2B volumes? A: FinoPay is our mobile app for customers featuring banking services like bill payments and fund transfers. In October's second half, we noticed growth in B2B volumes due to the festive season, though we focus on business, not consumer space.

Q2: Can you break down the 9.1 lakh CASA account additions? A: About 30-35% were standard Shubh accounts, 25% were through Gati accounts, which require quarterly subscription fees. Gati may yield better margins if renewal rates are high.

Q3: What is the margin difference between Gati and Shubh accounts? A: Gati accounts have around 20% higher margins than Shubh accounts, with Shubh yielding an average margin of 54%.

Q4: What's the status of the SFB license? A: We expect approval in the next couple of months. Our model aims to leverage our merchant network, enhancing yields, especially considering the current low-cost deposits.

Q5: Are we on track for the core banking platform migration by year-end? A: Yes, despite delays with FIS, we anticipate completing the migration by December if all pending items are delivered.

Q6: Why did Digital Payment Services revenue decline? A: The decline is industry-wide due to regulatory changes affecting risk management, rather than losing specific merchants. We expect recovery in H2.

Q7: What new digital offerings are expected in H2? A: Two new products include a prepaid instrument launched in August, generating projected revenues of INR1-2 crores/month, and a payout product pending RBI clearance with expected revenues of INR3-5 crores/month.

Q8: What are CASA subscription revenues this quarter? A: Subscription revenue was INR23.3 crores compared to INR21.9 crores in the previous quarter.

Q9: What are the expectations for CASA income growth? A: The Gati account's structure may initially limit income growth, though we anticipate increased revenue in future quarters.

Q10: Can you provide insights on the CMS segment stability? A: The CMS segment is stabilizing, though competition and MFI performance remain challenges. We see potential recovery from new avenues like education and healthcare sectors.

Q11: Will BC partners become exclusive after achieving the SFB license? A: We don't expect all partners to become exclusive, but achieving exclusivity with even 10-15% will significantly boost our base.

Q12: Will further regulatory impacts occur? A: Ongoing regulatory adjustments are expected; we are adapting our systems to face challenges effectively, with improved risk management in place.

Q13: What's the status on UPI charges and monetization? A: While government incentives have halted, UPI monetization via CASA remains crucial. Charging larger merchants for UPI services is a possibility but uncertain.

Q14: How does the bank account UPI incentives? A: We account for UPI incentives on a cash basis, receiving payments after a delay. Previous incentives were released every quarter with some lag.

Closing Remarks: Despite a challenging quarter marked by declining revenues primarily in remittance, margins have improved due to changes in our product mix. We expect a better H2 focused on profitability and operational cost controls, while awaiting SFB approval.