Detailed Narrative
Q2 FY26 Performance Overview
Fino Payments Bank reported Q2 FY26 revenue of INR400 crores, a 12% YoY decline, primarily due to regulatory tightening affecting digital payments and contraction in legacy products. Despite this, EBITDA grew 8% YoY to INR61.6 crores, with EBITDA margin expanding by 284 bps YoY to 15.4%, driven by a favorable product mix and disciplined cost control. PAT, however, decreased 27% YoY to INR15.4 crores due to higher depreciation and tax provisioning, while H1 FY26 PAT stood at INR33.1 crores, also down 27% YoY.
CASA and Deposit Franchise Strength
The bank demonstrated strong growth in its CASA segment, adding 9.1 lakh new accounts in Q2 FY26, bringing total liability accounts to 1.59 crores. Deposits grew 36% YoY to INR2,306 crores, with the cost of funds maintained at a low 1.9%. CASA revenue increased 21% YoY to INR159.4 crores, now contributing 40% of total revenues, and maintaining a healthy margin of 54%. Renewal income also grew 36% YoY to INR62 crores, indicating strong customer stickiness and engagement.
Digital Payments and Regulatory Impact
Digital Payment Services revenue declined 20% YoY to INR63.4 crores in Q2 FY26, impacted by regulatory tightening and increased scrutiny on fraudulent activities, which led to a risk-calibrated approach to merchant onboarding. Legacy transaction businesses like remittance and Micro ATM/AEPS also saw declines of 61% and 12% YoY, respectively, contributing to the overall revenue moderation. Management expects a gradual pickup in digital throughput by Q3 FY26 and Q4 FY26 as the environment normalizes.
SFB Transition and Future Outlook
The bank is actively preparing for its Small Finance Bank (SFB) transition, with management expecting RBI approval within the next couple of months. This transition is anticipated to significantly enhance the bank's ability to offer a wider suite of financial solutions and improve Net Interest Margin (NIM) by potentially 2x the current levels. The bank is strategically aligning its systems, people, and processes to be operationally ready for the SFB opportunity, with a dedicated team working on the planning.
New Product Launches and Technology Initiatives
Fino Payments Bank launched a prepaid instrument product in August, expecting INR1-2 crores in monthly revenue at steady state. A payout product, with an expected monthly revenue of INR3-5 crores, is awaiting RBI clearance. The bank also launched Soundbox QR in August/September to deepen merchant engagement and support future lending. The core banking system migration is in its final stages, targeted for completion by end of December 2025, and the first phase of an AI product is expected to go live in Q3 FY26.
Cost Management and Profitability
The bank maintained operating efficiency, with H1 FY26 operating expenses growing only 5% YoY to INR177.3 crores, despite compliance and inflationary measures. The improved product mix, with higher-margin CASA contributing more, helped expand EBITDA margins. The cost-income ratio for H1 FY26 was 29.8%, up from 25.6% in H1 FY25, partly due to higher depreciation from previous capacity expansion and reduced transaction income. The bank continues to focus on profitability and cost control.