Fino Payments Bank: Charting a New Course as India's First Payments Bank to SFB

Fino Payments Bank Limited, a prominent player in India's financial services sector, recently unveiled its Q3 and 9M FY26 results, highlighting a period of strategic transformation and disciplined execution. The quarter's performance was underscored by a landmark achievement: receiving in-principle approval from the Reserve Bank of India (RBI) to transition into a Small Finance Bank (SFB). This makes Fino the first and only payments bank in India to achieve this significant milestone, signaling a new era of growth and diversified revenue streams. While the financial results reflected some moderation in revenue due to industry-wide shifts and competitive pressures, the bank demonstrated resilient profitability and a strong focus on building a sustainable, scalable banking franchise.

For Q3 FY26, Fino Payments Bank reported a total revenue of ₹394.4 crore, marking a 15% year-on-year decline. The nine-month period (9M FY26) also saw a revenue of ₹1,247.9 crore, an 8% year-on-year decrease. This moderation was primarily attributed to pricing competition in the Cash Management Services (CMS) segment and heightened regulatory scrutiny impacting the digital payments business. Despite these challenges, the bank's Net Revenue Margin expanded significantly by 540 basis points year-on-year to 37.5% in Q3 FY26, driven by a deliberate shift towards higher-margin businesses. Operating expenses remained tightly controlled, contributing to a robust EBITDA of ₹63.9 crore for the quarter, a 6% year-on-year increase. The EBITDA margin improved to 16.2% from 13.0% in Q3 FY25, showcasing strong operational efficiency. Profit Before Tax (PBT) for Q3 FY26 stood at ₹17.5 crore (excluding an exceptional item of ₹3.1 crore), reflecting a 39% year-on-year decline, while Profit After Tax (PAT) was ₹12.2 crore, down 47% year-on-year.

Strategic Pillars of Transformation

The SFB transition is a pivotal moment for Fino Payments Bank. The management emphasized that the foundation built as a payments bank, particularly its strong CASA-based liability of approximately ₹2,500 crore at a competitive 1.7% cost of funds, will be a strategic moat. This low cost of funds is expected to enable the bank to maintain a Net Interest Margin (NIM) of around 10% on a largely secured lending portfolio. The proposed lending products include loans to MSMEs, affordable home loans, LAP, micro LAP, and select gold loans, with a disciplined approach to loan-to-value ratios and customer selection to ensure credit costs remain below 1% over the cycle. The bank aims for a loan book of ₹8,000-10,000 crore by FY 2030 and an ROE exceeding 20% in the medium term.

Another key differentiator for Fino is its extensive merchant-led ecosystem, comprising over 20 lakh merchants across 97% of India's pin-codes. This asset-light sourcing model is expected to facilitate lower customer acquisition costs, better customer insights, and stronger engagement and collections for the lending business. The bank plans minimal physical infrastructure investment, not exceeding ₹15 crore annually, leveraging its existing distribution network. On the technology front, Fino successfully migrated its core banking system to Finacle in January 2026. This 'hollow-the-core' strategy provides a flexible and scalable technology backbone, enabling rapid product launches and customized offerings without a disproportionate increase in costs. The benefits of this migration are anticipated to materialize from the next quarter onwards.

Digital Momentum and Product Performance

Fino Payments Bank continued to strengthen its digital footprint, with digitally active users growing 22% year-on-year to nearly 60 lakh customers. Digital throughput now accounts for approximately 56% of the total throughput, with digital transaction count increasing 17% year-on-year to over ₹89 crore in Q3 FY26. The company is actively expanding its digital business reach through strategic tie-ups with payment aggregators and gateway partners. However, the digital payment business faced headwinds due to enhanced regulatory scrutiny across the ecosystem, impacting merchant onboarding and transaction volumes. The management acknowledged this cautious approach, prioritizing compliance and control.

In terms of product performance, CASA revenues grew 17% year-on-year to ₹162.8 crore in Q3 FY26, and 22% year-on-year to ₹476.3 crore for 9M FY26. CASA renewal income also saw a healthy 19% year-on-year increase to ₹57 crore in Q3 FY26, reinforcing customer stickiness. Average deposits grew 32% year-on-year to ₹2,496 crore, with the average CASA balance improving 9% year-on-year to ₹1,314. Traditional transaction-led businesses, including remittance, AEPS, and micro ATM, experienced a decline in revenue, reflecting the industry's shift towards digital channels. Remittance revenues moderated by 50% year-on-year in Q3 FY26 to ₹34.3 crore, and by 57% year-on-year for 9M FY26 to ₹120.8 crore.

Outlook and Future Trajectory

Fino Payments Bank is positioning itself for a significant transformation. The in-principle SFB approval, coupled with a robust CASA base and advanced technology infrastructure, provides a strong foundation for future growth. The management's focus remains on disciplined consolidation, enhancing customer engagement, and building a differentiated, scalable, and sustainable banking franchise. While the immediate future may see continued adjustments in revenue mix and operational costs related to the SFB transition, the long-term outlook is optimistic, with clear aspirations for a substantial loan book, improved profitability metrics, and continued digital leadership. The company is well-prepared to leverage the SFB opportunity, aiming to deepen financial inclusion responsibly and sustainably across India.