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Informist, Friday, Dec. 20, 2024

 

--Fino Payments Bk: To retain focus on e-payments post becoming small fin bk

--CONTEXT: Fino Payments Bk CFO Ketan Merchant in interview with Informist

--Fino Payments Bank: Aim to open 5 mln CASA deposit accounts next year

--Fino Payments Bk CFO: Aim to open 100,000-150,000 merchant accts every yr

--Fino Payments Bk CFO on small fin bk licence: No concern from RBI

 

 

By Kshipra Petkar and Kabir Sharma

 

 

MUMBAI – Fino Payments Bank will continue to focus on digital payments operations and has no plan to convert itself into a conventional lending bank even after getting small finance bank licence from the Reserve Bank of India, according to its Chief Financial Officer Ketan Merchant.

 

"Our thought process is that our payment services will continue to grow. So SFB (small finance bank) will be one additional product for us. It is not that we convert completely into a conventional lending bank. We will not do anything which is brick and mortar," Merchant told Informist in an interview.

 

The payments bank had applied for the small finance bank licence last year and is awaiting RBI's approval. He said that conversations are going on and that there is no concern from the regulator's point of view.  The bank aims to run a "light asset model" and is open to offer products such as loan-against property and vehicle finance, Merchant said. "Lending would become one more arm for monetisation of the bank," he said.

 

The bank will not need additional capital to transition into a small finance bank, Merchant said. "...currently we do not see that need. The reason we are saying is that we are not going to go overaggressive on lending. We want to be selective in terms of our lending."

 

The bank will leverage its merchant ecosystem for building the lending book, he said. Fino Payments Bank, which heavily relies on its merchants in rural and semi-urban areas, had 1.85 million merchants as of Sept. 30. The aim is to have 2.0-2.2 million merchants once it becomes a small finance bank, he said. The bank also aims to open 100,000 to 150,000 merchant accounts every year.

 

FINANCIALS

The bank, which has guided for a 25% growth in revenue in the current financial year, expects the same momentum to continue going forward. In the quarter ended September, the bank's revenue rose 27% on year to INR 4.6 billion, mainly contributed by renewable income, Merchant said. Renewable income determines customer stickiness with the company. The bank's renewal income rose 51% on year to INR 457 million.

 

The bank's revenue is primarily contributed by current, savings account deposits, remittance, digital payment services and cash management services segments. Within the overall revenue portfolio, CASA deposits form 23% of the total revenue mix, followed by remittance and digital services that form 22% and 17%, respectively.

 

Merchant said CASA deposits are growing steady at 40-50% and the bank will try to open 5 million CASA deposit accounts next year. Within the cash management services segment, Merchant said the bank has consciously reduced the share of non-bank lenders and microfinance institutions. "Couple of years back, our NBFC, MFI was 90%. From there we brought it down to 50-60%. So we had attempted to diversify out there. I think we will keep it (share of NBFC and MFI) range bound from here on," he said.

 

Asked if the transition into a small finance bank would increase the cost of funds, Merchant said that it is bound to rise, but there will be an arbitrage of 200-300 basis points between them and other banks. "Logically think, most of the banks what do they do? They go and raise liabilities in urban and lend in rural. Our today's model is raising in rural. That is the reason," he said.

 

"As India is growing, we will also see average deposit per account growing. So I can just say that maybe 12-18 months back our average balance per account was around INR 800, now it is INR 1,500-INR 1,600 per account. So our thought process is that while the cost of deposit grows, the arbitrage will also be there," Merchant said, adding that the cost of funds for the bank is currently at 2.2%.

 

IT INFRA

Being a payments bank, Fino Payments Bank has heavily invested in technology, Merchant said. "We are very agile in terms of our technology and we invest very heavily in technology. Just to give a perspective, last couple of years on an annual basis, we invested some 90 odd crores (INR 900 million) in technology," he said.

 

The bank is migrating its core banking software to Finacle, Merchant said, adding that the bank expects to completely shift to the new banking software by the end of the current financial year. 

 

Merchant said the bank was building a full ecosystem around unified payments interface. "Currently it's only one product which is driving the business. Maybe there will be lot more such accounts or such products which we are in the process of coming. ULI (unified lending interface) will come into play. That will also come, UPI credit will also come. So our ecosystem will be built around the digital and UPI," he said. The company had a UPI throughput of INR 470.4 billion September, up 43.1% on year, accounting for a 1.6% share in total number of UPI transactions.

 

The payments bank currently has around 25 partners in the business-to-business space and around 270 partners for cash management. "Our philosophy is also that everything is not required to be self-run. We have a technology base, we have geographical reach. So we will continue to look at the partnerships and alliances going forward as well," Merchant said.

 

On the National Stock Exchange, the shares of the payments bank closed 0.3% lower at INR 321 on Friday.  End

 

Edited by Akul Nishant Akhoury

 

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