Synopsis: Fino has discreetly developed an affordable deposit system, evolving from kirana counters to receiving RBI approval for SFB status. But can this concealed liability franchise now unleash lending potential?
Fino Payments Bank might appear as just another minor payments bank, yet underneath, it has been developing something significantly larger. With robust deposit growth, enhancing margins, and recent in-principle approval to transition into a Small Finance Bank, the narrative is evolving. The crucial question is — can this bank, driven by merchants, transform its inexpensive deposits into a strong lending mechanism
Fino’s path began in 2006 as FINO PayTech, nurtured by ICICI Bank. Back then, it wasn’t even a bank, rather it served as a business correspondent, assisting banks in connecting with rural and semi-urban clients. It managed KYC, biometric verification, smart cards, welfare disbursements, and cash deposit and withdrawal services. Gradually, it established a strong presence throughout the nation. Currently, Fino functions in over 97% of India’s pincodes, backed by an extensive merchant-driven network.
Financials
The revenue from operations for Fino Payments Bank stands at Rs 394 crores in Q3 FY26 compared to Q3 FY25 revenue of Rs 461 crores, down by 15 per cent YoY. Additionally, on a QoQ basis, it reported a slight decline of 1 percent from Rs 400 crore.
Also, EBITDA stood at Rs 63.9 crore in Q3 FY26, a growth of 6 percent as compared to Rs 60.2 crore in Q3 FY25. Additionally, on a QoQ basis, it reported a growth of 4 percent from Rs 61.6 crore. Also, coming to the margins front, EBITDA margins increased by 320 bps YoY, reaching 16.2 percent in Q3 FY26.
Coming down to its profitability, the company’s net profit stood at Rs 12.2 crore in Q3 FY26, a decline of 47 percent as compared to Rs 23.1 crore in Q3 FY25. Additionally, on a QoQ basis, it reported a decline of 20 percent from Rs 15.4 crore. However, it is to be noted that the company faced an exceptional loss of Rs 3.1 crore during the quarter arising from a one-time impact from the new labour code.
Regarding its product revenue mix, the company reported Rs 162.8 crore (41 percent) of its sales from its CASA services, followed by Rs 62.7 crore (16 percent) from Digital Payment Services, Rs 69.4 crore (18 percent) from Transaction Business, Rs 35.1 crore (8 percent) from Treasury & Others, Rs 29.6 crore (8 percent) from CMS services and Rs 34.8 crore (9 percent) from BC banking.
Average deposits stood at Rs 2,496 crore in Q3 FY26 which is a robust 32 percent from Rs 1,890 crore in Q3 FY25. During the period, the number of CASA accounts also grew by 25 percent reaching 1.68 lakh. On a more detailed basis, its average deposits grew from just Rs 475 crore in Q1 FY22 to a staggering 2,496 crore in Q3 FY26, which is a 5x jump during the period highlighting the significant traction in its deposit base.
During the period, its customer stickiness also improved. In Q3 FY23, out of the total revenue it derived, only 6 percent of its revenue was from renewal, which has now increased to 14 percent in Q3 FY26. Customers’ average balance also grew by 9 percent from Rs 1,205 to Rs 1,314 in Q3 FY26.
Overview
In 2017, Fino officially transitioned to Fino Payments Bank after obtaining a payments bank license from the RBI. A payments bank is able to receive deposits and provide payment services, but it is not permitted to lend. Customer deposits were limited, and the majority of funds needed to be held in government securities. A lot of people believed this model would face challenges since lending typically represents the largest source of profits for banks.
Fino opted for an alternative route. Rather than establishing costly branches all over, it transformed local kirana shops, petrol stations, and small retailers into banking outlets with the aid of micro ATMs and Aadhaar-enabled technologies. These sellers were already reliable in their communities, and this allowed Fino to maintain low expenses and expand rapidly without significant branch investments.
A significant innovation from Fino was its subscription-driven CASA model. Rather than providing free accounts, Fino imposed a charge for combined services. This ensured that gaining new customers was profitable from the beginning and generated recurring revenue. As time passed, renewals grew to be a significant component of income.
As users utilised their accounts more frequently, balances began to rise. Fino successfully kept its funding costs at approximately 2%, which is considerably less than those of numerous NBFCs and several Small Finance Banks. Inexpensive and reliable deposits are the cornerstone of a robust bank, which is referred to by people as a “liability franchise.”
At the close of FY20, Fino achieved profitability as a payments bank, a milestone that many others in the sector could not reach. In FY23 and FY24, it demonstrated steady profitability over several quarters. Despite the slowdown in revenue growth caused by regulatory changes, EBITDA margins were enhanced due to an improved mix and cost management.
Its customer base has increased from just 78 lakh in FY23 to a staggering 1.43 crore in FY25, and it is aiming to reach a customer base of 3.26 crore by FY30. The company intends to acquire customers at a rate of 2.5 to 3 lakh per month by offering innovative service propositions to enhance customer stickiness and enhance the target customer segment.
Digital transactions rose significantly as well. Currently, over 50% of Fino’s overall transaction volume originates from digital platforms such as UPI. Although UPI monetisation is limited, it enhances customer interaction. Increased usage leads to elevated renewal rates. Increased renewals indicate consistent income similar to annuities.
Nonetheless, not everything proceeded without difficulty. Domestic remittance (DMT) and micro ATM earnings encountered stricter regulations. Government incentives for UPI were cut. Earnings per transaction decreased. However, due to Fino’s development of a robust renewal engine and a low-cost deposit foundation, it was able to safeguard profitability even during a decline in transaction revenues.
Historic milestone
The largest achievement occurred in December 2025 when the Reserve Bank of India (RBI) provided in-principle approval for Fino Payments Bank to transition into a Small Finance Bank (SFB). This allowed it to be the first payments bank in India to obtain such approval. A payments bank cannot lend, unlike an SFB.
This change begins a new phase. Currently, Fino operates over 120 branches, and the management has expressed intentions to grow to nearly 300 branches within the next three years. Branches will manage credit underwriting, compliance, and collections. However, the merchant network will continue to be vital for customer relationships.
Fino has also tested lending through a collaborative approach, as it has implemented referral models for gold loans and small business loans via partner NBFCs and banks. This indicates it possesses some initial exposure to credit without assuming direct balance sheet risk.
Financial realities also exist. Management has recognised that new equity might be necessary to facilitate the SFB transition. A Small Finance Bank is required to adhere to capital adequacy standards and allocate resources towards technology, risk management, and expanding its branches. This may imply capital acquisition and potential dilution for stockholders.
Nonetheless, the chance is significant. Fino has established deposits with a funding cost of approximately 2%, serves more than 97%of pincodes, conducts over half of its transactions digitally, and has maintained steady profitability as a payments bank. Currently, with the capacity to lend, it may be able to generate greater spreads on those deposits.
The tale becomes straightforward when articulated clearly. For almost 19 years, starting in 2006, Fino established distribution, trust, and deposits in rural and semi-urban regions of India. Between 2017 and 2025, it demonstrated that a payments bank can achieve profitability. In 2025, it obtained authorisation to transform into a Small Finance Bank, which is a significant moment for the payments bank major.
The market previously observed a minor payments bank that had limits on deposits and did not engage in lending. However, beneath the surface, Fino was developing a liability system fueled by subscription CASA, recurring revenue, and inexpensive deposits. Currently, as it transitions into a Small Finance Bank, those deposits may transform into lending capabilities.
Its success will rely on rigorous implementation in lending and managing capital. However, the figures clearly indicate that this is more than just a tale as it represents a systematic development, transitioning from kirana shops to an authorised bank with nationwide presence, affordable deposits, and a fresh opportunity on the asset side.
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