Fino Payments Bank Ltd (FINOPB) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator (Go India Advisors): Ladies and gentlemen, good day and welcome to Fino Payments Bank for Q2 FY27 earnings conference call hosted by Go India Advisors. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Sheetal Khanduja from Go India Advisors. Thank you, and over to you, ma'am.
Sheetal Khanduja (Go India Advisors): Thank you, Huda. Good afternoon, everyone, and welcome to the Q2 FY27 earnings call of Fino Payments Bank. We have on the call Mr. Ketan Merchant, Interim Chief Executive Officer, Mr. Anup Agarwal, Interim Chief Financial Officer, and Mr. Tejas Maniar, Chief Digital and Liabilities Officer. We must remind you that the discussion on today's call may include certain forward-looking statements, and must be, therefore, viewed in conjunction with the risks that the company faces. May I now request the management to take us through the financials and the business outlook, subsequent to which we will open the floor for Q&A. Thank you, and over to you, Ketan.
Ketan Merchant (Fino Payments Bank Ltd): Thank you, Sheetal. Good afternoon, everyone, and thank you for joining us on Fino Payments Bank earnings call for the second quarter and first half of FY27. Let me begin with where we stand on our journey of becoming Small Finance Bank. We're making steady and visible progress and remain on track to meet RBI's stipulated conditions within the prescribed timeline. On SFB preparedness, we made meaningful progress this quarter across technology, people, and process. On the people front, we strengthened our leadership team with four senior executives who will drive branch banking, liabilities, credit risk, and MSME lending. Each of them brings a unique set of skills and expertise to the table, backed by over two decades of experience in banking industry. On technology front, we are building capabilities with complements our existing distribution ecosystem, enhancing our enterprise-wide technology architecture, and creates seamless customer journeys from sourcing to sanction and execution with minimum manual intervention. On the process and project management and governance, PricewaterhouseCoopers continues to support our program and operational readiness. We are establishing a robust governance, risk, and compliance framework along with a core policy suite that a Small Finance Bank requires. These are investments we are making ahead of
Ketan Merchant (Fino Payments Bank Ltd): as a foundation of our broader lending franchise, total disbursements in Q2 was 762 crores, up by 286% on a year-on-year basis, while for H1 '27, disbursements stood at INR 1,390 crores, already surpassing full-year levels of FY '26, which stood at 1,285 crores. We have consciously kept this business centered on collateral-based lending, which aligns with our strategy on secured portfolio once we enter the small finance bank era. Beyond fee income today, referral business deepens organizational insights into customer credit, market demand, servicing experience and stronger lending partnerships ahead of the launch of our own lending business. This growth currently being witnessed is a testimony to scalability of our differentiated credit sourcing model through merchants. Our capital position continues to remain comfortable and we are above the regulatory requirement for the proposed small finance bank, and our business plan through by FY '30 remains exactly the same as we had predicted earlier. We will continue to build a predominantly fee-based business and strong liability franchise complemented by secured lending portfolio. Coming to our liability franchise, this remains the cornerstone of our model and our biggest strategic differentiator. Our CASA base is inching towards a 2 crore mark, having reached 1.91 crore as at September 2026. This quarter saw 8.2 lakh new accounts open, averaging roughly 1 new account being opened every 10 seconds. Average total deposits grew by 12% on a YoY basis to 2,794 crores, continuing its growth momentum. To further strengthen the deposit base, we have launched a Daily Deposit Plan product wherein merchant would get the customer to deposit fixed daily amount in the account and thereby encouraging customers to save and build disciplined saving habits and convenience to small vendors through deposit in their bank account every evening post banking hours. In addition, we are also planning to launch Value Savings Account in partnership with NBFC and other institutions which are our CMS business associates, to cater to customers obtaining loans from these financial institution, that is B2B2C customer acquisition strategy. CASA segment contributed 174 crores or 52% of our revenue, including a record renewal income of 74.6 crores, which we see as one of the biggest indicators of sustainable retail income. Our cost of funds for Q2 '27 was 1.4%, giving FINO a structural cost advantage. Further, we expect our cost of funds to be around 4% even after SFB conversion, retaining an advantage of roughly around 250 to 300 basis points over the traditional SFBs. Our more than 20 lakh strong asset-light merchant network remains a key competitive strength. It helps us acquire customers at a relatively low cost and gives us a ready distribution platform for future banking and lending products. Digital engagement also continues to deepen as digitally active customers in September '26 stood at 64.9 lakhs, while for the entire second quarter of FY '27, it stood at 87.9 lakhs. Turning to our traditional transaction business, we saw a sequential increase in throughput and revenue from remittance and Aadhaar Enabled Payments System. Overall, UPI continues to dominate the ecosystem, and driving behavioral shift from cash- or card-based small ticket size transactions to UPI. To address this shift, we have launched Cash at UPI, wherein a customer will be able to withdraw cash using UPI at a Fino merchant point. In times to come, this has potential to increase and serve as a replacement of traditional ATMs. Further, NPCI along with partner banks, including Fino, launched a third-party cash product deposit cash deposit product backed by AEPS during the Global FinTech Festival 2026, wherein customer can deposit cash into other
Ketan Merchant (Fino Payments Bank Ltd): and beneficiary account by providing valid KYC and authentication. This will also provide some support to the transaction business volumes. Our B2B business CMS throughput grew 13% sequentially and 12% on a y-o-y basis to 20,511 crore. The uptick was a result reaffirming the confidence of our business alliances, NBFCs, Fintech, e-commerce and others in our institution. Competition in this segment continues to weigh on pricing, hence our focus remains on volume and network engagement and reinstatement of our earlier B2B partners. In Q1 FY '27, our B2B and alliance business has reduced due to skepticism of an event which which had happened. Now in Q2 and more, we are indeed working towards regaining the market share in this alliance and B2B space as seen in the the the CMS and alliances numbers, which I just stated earlier. On digital business front, we had indicated the relaunch of our UPI B2B P2M segment during the year, and I'm happy to share that we are on track and shall be resuming the the these services or this product by Q4 FY '27. Overall, Q2 FY '27 or H1 FY '27 was a period of consolidation, execution against our strategic priorities of winning back our partners. We continue to strengthen our liability franchise, advance our SFB roadmap across technology, people and governance, and rebuilt our cast services for UPI-first world, while absorbing the cost of that investment. Our objectives remains to build a differentiated digital-led AI-driven small finance bank anchored on three enduring strength: a strong liability or, I can say, liability-first franchise with a structural cost of fund advantage, a predominantly secured and asset-light lending model powered by our physical distribution network, and technology-led operating platform built around Finacle and AI-enabled lending capabilities. FY '27 remains the transition year, and our priorities are unchanged. Sustainable long-term vision and growth, disciplined execution and investment for growth are our key priorities for this year. With that, let me hand it over to Anup to take you through the financial performance in more details. Over to you, Anup.
Anup Agarwal (Fino Payments Bank Ltd): Thank you, Ketan. Good evening, everyone. Let me start with the overall perspective. In Q1 FY '27, our revenue recovered sequentially supported by recovery in both retail transaction business and our B2B alliances business. Our net revenue margin compressed sequentially, but remained higher than last year due to higher contribution from the high margin CASA segment. Our liability continue to strengthen and deepen digital presence. Revenue for the quarter stood at 333.6 crores, up 9% sequentially and down 17% year-on-year. For the first half of the fiscal, revenue was around 640 crores, down 25% year-on-year. The year-on-year decline is largely driven by recalibration of our B2B P2M business. Our sequential growth across all revenue verticals during Q2 FY '27 over Q1 demonstrates confidence of our merchants, business alliances and other associates in the institution. Throughput grew by 4% sequentially to 1.15 lakh crores despite ecosystem challenges on mule menace, enhanced daily inquiries, tough competition in the B2B alliances business. In terms of mix, CASA contributed around 52% of the total revenue, tradition transaction business and B2B alliances regained some volumes during the quarter. Net revenue was around 127.1 crore, down 14% year-on-year. However, sequentially, it grew by 3%. Our net revenue margin was around 38.1%, which is 100 basis point higher than the last year's net revenue margin. And however, it is lower by 450 basis point sequentially. Similarly, for the first half, our net revenue margin was around 40.3% against 35.2% a year ago, an improvement in 500 basis points which reflects structural improvement in a quality of our revenue mix. On the expense side, our operating costs marginally grew by 5.8
Anup Agarwal (Fino Payments Bank Ltd): and year-on-year, and 4.5% sequentially. For the first half, the operating cost was around 180 crores, up only 1.6% year-on-year. Our cost-to-income ratio improved to 27.6% in quarter two versus 28.7 in quarter one. We are maintaining frugality and in parallel investing in technology and talent. Moving to profitability, EBITDA was around 35.1 crores, with a margin of 10.5% compared with 61.6 crores a year ago and 43.1 crores in quarter one. In terms of cash profit, we continue to remain positive. We will continue to invest in people, process, tech and technology, which might have an impact in the short-term profitability. However, building long-term robust, sustainable, and resilient institution. Coming to our further operations, our liability franchise continue to be a strongest pillar of our business. Account opening momentum was sustained with 1 8.2 lakh new accounts opened. The CASA renewal revenue showing highest ever during any quarters. Our deposits grew at around 12% to 2,794 crores during the quarter. The growth of CASA keeps improving the quality of our earnings today, as it contribution keeps rising and creates a solid funding basis for Small Finance Bank. In the traditional transaction business, AePS and remittance recovered 15% and 18% sequentially, driven by increase in the DBT activity during the quarter. Coming to our B2B business, CMS segment throughput grew 12% year-on-year to 20,500 crores. As mentioned earlier, it was part of our regaining the business volume strategy. The pricing competition still exists in this space, which have impacted the take rates, but we believe the sustained throughput will contribute to revenue and subsequently to profitability. Our loan referral business, as mentioned by Ketan, which is a foundation or a starting point for our launch of SFB, saw disbursements increased by 2.5x year-on-year to 1,390 crores in H1 '27. The pipeline remains aligned with the secured segment is we intend to focus on, namely gold loans, affordable housing, loan against property, and secured MSME lending. Our fund management, treasury, despite rate cuts during FY '26, we have been able to deliver high yields of approximately 100 basis points then the market yields, which also has contributed to our revenue. On the regulatory front, our net worth and capital adequacy are well above the regulatory requirements, even from an SFB perspective. Looking ahead, our strategic direction is unaltered. We will continue to strengthen our liability franchise, maintain disciplined cost management, and invest selectively in capabilities required for the transition. Overall, we believe the foundation we are building together with our structural funding advantage, disciplined execution, and focus on secured lending positions as well to create sustainable long-term value for our stakeholders. With that, we're happy to take any questions. Thank you.
Moderator (Go India Advisors): Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. A request to all participants, please restrict your questions to two questions per participant. For more questions, please rejoin the queue. Let's wait for a moment while the question queue assembles.
Moderator (Go India Advisors): The first question is from the line of Ankit Kanodia from Zen Wealth Management, please go ahead.
Ankit Kanodia (Zen Wealth Management): Yeah. Thank you for taking my question, and congratulations on a good run rate on the referral loan. So, my first question is regarding the slide number 12 where we have mentioned about the SFB timeline, and we say that submission of final readiness to the RBI and go live in Q1 FY28. How confident we are that we will be able to achieve it? Do we see any delays which can happen maybe from RBI's side, or are we very confident that we will be able to start by Q1 FY28? That's my first question, sir.
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