Fino Payments Bank Ltd
NSE:FINOPB
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Fino Payments Bank Ltd
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Ladies and gentlemen, good day, and welcome to Fino Payments Bank Q1 FY '24 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajat Gupta from Go India Advisors. Thank you, and over to you, sir.
Yes. Thank you, Liba. Good afternoon, everyone, and welcome to Fino Payments Bank Earnings Call to discuss the Q1 FY '24 results. We have on the call with us today, Mr. Rishi Gupta, Managing Director and Chief Executive Officer; Mr. Ketan Merchant, Chief Financial Officer; and Mr. Anup Agarwal, Head, Investor Relations. 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. I now request the MD, Mr. Rishi Gupta, to take us through the company's business outlook and financial highlights, subsequent to which we'll open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Rajat. Good afternoon, ladies and gentlemen. Thank you for joining us today for Fino Payments Bank Earnings Call. My opening remarks this time will be a bit longer because of the strategic initiative we have announced. So please, bear with me. FY '23 was a great year for us and FY '24 has started on a very positive note. Our TAM strategy, which is transaction, acquisition and monetization is delivering good results. We are happy to announce that this quarter's performance is a step in the direction to achieve the aspirations we have set for ourselves for FY '26. For the quarterly performance, we registered our highest ever quarterly revenue of INR 348 crores with 8% sequential growth and 21% year-on-year. PAT has grown 85% year-on-year at INR 18.7 crores with EBITDA at INR 40.5 crores, which grew 72% on a year-on-year basis. Our total throughput crossed INR 75,000 crores for the first time in the quarter, growing 25% Y-o-Y, and the total number of transactions also crossed INR 40 crores, which grew by over 62% on Y-o-Y basis.
Our distribution network continues to grow, and we have now built a merchant base of over 14.4 lakhs. Our growth of high-margin products consisting of CASA and CMS now constitute 29% of the overall revenue compared to 21% a year ago. Our own channels contributed to 65% to the overall revenue, much in line with our range bound guidance. The subscription revenue now contributes to 34% of the overall revenue compared to 25% a year ago, demonstrating a substantial jump in just 1 year. We are adding on an average 2.5 lakh new customers every month to our base. Our customer base now stands at 8.3 million and is growing [ better ]. This is helping us not only increase our annuity income, but will also argue well towards our long-term strategy of SFB. Before we go into strategic discussions on SFB, let me first delve upon my thoughts on other key aspects, which I'm monitoring besides the business growth.
Digital. Our business continues to see strong traction on the digital banking side as digital throughput reaches INR 18,000 crores in quarter 1 FY '24, growing at a 94% year-on-year basis. Digital throughput is now 24% of the overall throughput as compared to 1% in quarter 1 FY '21. This showcases the strong significant strides we have taken on our digital initiatives. We continue to contribute more than 1% of the transaction volume in the UPI ecosystem, which is much higher than many of the known established banks. During the quarter, we have opened 34,000 savings account on a digital platform through our Fino Pay app. In order to enhance our digital footprint, we are partnering with FinTech and during the quarter, we partnered with Sequoia Capital-backed fintech, Hubble, a company called Hubble to develop India's first spending account. It offers a digital savings account powered by Fino Payments Bank. We are looking at many more partnerships in the near future.
In overall scheme of things in the long run, facilitating digital penetration and that to on a profitable basis is a key impetus for us in our strategy road map. Now let me come to technology. While we don't invest in building a brick-and-mortar branch network, but we don't shy away from investing in technology. We believe technology is the backbone of Payments Bank, and we will continue to be the case in case of SFB as well. In line with that approach, let me share that our technology upgradation of following the code as well as review of our existing core banking platform is on track to deliver a much superior technology platform to cater to the business growth and future product offerings. We will continue to invest in technology to be future added and enhance our digital offerings. With distribution, data and digital at our core. Let me dovetail into our strategic agenda.
In line with our long-term strategy, we are happy to share that our Board has given us the go ahead to upgrade our banking license and convert into small finance bank subject to the regulatory approvals. We will apply to RBI in the due course of time. It will take around 24 months subject to regulatory approval on time before we start operations as an SFB. Also Board has directed management to evaluate corporate restructuring for group consolidation. The restructuring will help us in streamlining the group structure and build long-term value. I know some of you have questions, apprehensions on how Fino -- or how Fino's SFB will be different from other SFBs in the market. Let me clarify and reiterate Fino continues to believe in its core asset-light approach and fee-based profitability. It will be a differentiated SFB. Let me delve a little bit on the strategy now. It will be an enhancement of license, thus enabling us to become a Payments Bank ++ model, which means ability to raise higher amount of liability, deposits and also offering lending products, this being the twin engines of growth for any bank.
Second, lending to a known customer merchant who have been transacting with us for the minimum of 1 to 2 years. Meaning lending based on transaction history with a lot of data analysis, thus reducing the credit risk and building operational efficiencies in lending. The third approach will be on our asset-light approach. The asset-light approach by leveraging the existing distribution network, data and limited branch expansion backed by robust technology and tools. In any normal bank, you would see higher fixed cost and higher fixed asset model. But in our case, it will be a very different with few branches and a lot of merchants/BC points. These BC points will help in generating liability as well as will be the consumer of credit plus help us on our lending as well.
Number four, fee-based income will continue to be the core contributor to the revenue. Our own estimates show that 75% to 80% of the revenue pie in the next 5 years will continue to be from the noninterest income compared to 10% to 90% for existing SFBs where 90% of the revenue comes from credit and only less than 10% comes from transactions are really pretty much the opposite of that. Low cost of funds that is higher CASA balance, our cost of funds will be 200 to 250 basis points lower than competition. This I'm already saying in terms of our experience right now, and we would continue with that approach. At less than 2.5% average rate, we have been able to generate more than INR 1,200 crores of deposits from our existing customers and merchants. We expect to substantially grow the liability franchise as our customer base crosses 2 crores in the next 3 to 5 years.
Next point, boost to our existing payment services in B2B and B2C space. As you remember, we had mentioned that we are getting into payment space. We believe the B2B payments business is expected to grow once the limit of 2 lakh EOD balance restriction is removed post SFB license. We will be working on creating a very different SFB with no new requirements of capital to start with and will continue to be a transaction services bank with fee-oriented payment growth strategy and lending is one of the products only. We are committed to deliver superior performance and enhance shareholder value. With this, I would like to hand over to Ketan Merchant, our CFO, to walk us through the financial results. Over to you, Ketan.
Thanks, Rishi. Good afternoon, ladies and gentlemen, and thank you for joining our earnings call today. As Rishi mentioned, this quarter's performance showcases that we are in right direction towards achieving our stated guidance of FY '26 and we'll continue to grow at 20% Y-o-Y, focusing on our acquisition strategy. As we mentioned earlier, our business model is such that with 20% annualized growth in revenue, operating leverage playing on, our bottom line growth percentage is typically in the range of 2 or 2.5x of revenue growth. Our profitability across past 12 quarters clearly demonstrate the strategic model approach is going to the core. Now let me start talking about the Q1 numbers. Our Q1 FY '24 revenue is at INR 348 crores, which saw a Y-o-Y increase of 21%. EBITDA has grown by 72% Y-o-Y to INR 41 crores and our PAT increased to 85% Y-o-Y to INR 18.7 crores.
Our cost-to-income ratio Q1 FY '24 continues to remain at around 26%. And we are confident that over the medium to long term, we'll be able to maintain this around 25%, 26%. This is despite the digital and technology plans, which Rishi explained earlier. Our Q1 FY '24 total throughput crossed INR 75,000 crores, growing by 25% Y-o-Y, and our digital throughput grew by 94% Y-o-Y to INR 18,350 crores, which is -- which now constitutes 24% of our overall throughput. Our debit card spends have gone up by 45% Y-o-Y. This is establishing that active customer base for us, transactions, cost -- accounts and the activity in the transaction is equally important. On a product level performance, in CASA, our revenues have gone up by 63% Y-o-Y to INR 67 crores, led by strong growth in our renewal income, which has increased by 96% Y-o-Y.
A strong renewal income, which also reflects a healthy bottom line because the margin of renewal income, as I said earlier, is around 75% or more. The secular uptick in our account subscription renewal rate points to customers' preference to bank with us, the service-oriented approach, which we are saying. Additionally, we are witnessing an increasing account balances of customers who transact digitally. Average deposit base for this customer has increased by 13% sequentially to INR 1,221 for each account. As we add more customers with most of them being digitally active, we expect to have a healthy deposit growth, which is a cornerstone of our SFB model as well. Remaining on CASA, it is imperative to highlight that our digital customers' renewal rate is in excess of 80%, whereas the normal renewal rate is around 60%.
CMS. CMS is our second high-margin product and continues to grow exceedingly well as we enjoy the leadership position in this product. On a Y-o-Y basis, throughput in Q1 FY '24 grew by 71% to over INR 15,500 crores. At one point of time, this was dominated by BFSI. The diversification initiative, which we worked on has resulted in quite a divergent CMS customer base, which we have. To collaborate that with numbers, in Q1 FY '22, 97% of our CMS business was coming from BFSI. Now it is coming to around 61%. So this is the diversification which we've done. Across 189 partners is what we have in CMS.
Overall, CASA and CMS continue to outperform our expectations. These businesses are at a stage where we can grow at a good rate, and we are confident that this momentum will continue. Very quickly going on our transaction business, which is hooked to our acquisition strategy. That is showing a muted growth. And overall, industry specifically in AEPS has also witnessed some challenges on account of cloning. However, our endeavor is that business and footfall here will continue to drive our acquisition strategy, which is a key element of business plan now and even in an SFB scenario.
With respect to our strategic decision, which Rishi alluded to in terms of conversion to SFB, we will be Payments Bank ++ model, i.e., service-oriented, fee-oriented and with lending as 1 additional product only. We continue our asset-light strategy. Ours would be a liability focused franchise and credit to known customers, merchants having a relationship in excess of 2 to 3 years. In this regard, I would like to draw attention on Slide 26 of our deck wherein our long-term strategy of liability generation has been calculated. Key aspects here is that if our CASA acquisition strategy goes the way we have envisaged, our liability franchise will indeed be a key differentiator. Some of the percentages in comparison with other SFB, Rishi has already alluded to. The limited point, which I essentially want to make on the Slide 26 is, to have a low-cost fund, a low-cost liability base, we do not have to do anything out of the blue if our 2.5 lakh new customer acquisition continues and we are in the range of around 35 lakh, 40 lakh new customer accounts and we managed to increase the quality.
Our liability base or our CASA base, which low-cost liability would be indeed a real differentiation between us and the rest. Our low-cost funds, robust technology, analytical tools and asset-light approach will provide a cutting edge over players in the market who rely on lending only as a primary approach. Since FY '22, as part of our TAM strategy, along with physical, we've been steadily making strides on the digital side and the results are overwhelming. We have invested quite a bit on our digital stack, including putting our Fino Pay application and pushing on the UPI transaction. We will continue to invest in technology largely on the CapEx front to upgrade capacity buildup and be ready for -- in line with our strategic directions. However, our operating leverage will continue to play wherein our revenues will continue to grow higher than cost.
Finally, I would like to reiterate that at Fino, we've already cracked the transaction part, and we are further looking to fuel the acquisition of users, which would be -- which would then further set the stage for monetization. We've largely been a rural-focused bank catering to a segment of customers that prefer assisted services. Now the focus is on making ourselves future-ready. And for that, we are strengthening our digital footprint through our Fino 2.0 initiative. With this, I would like to open the floor to questions. Rajat, back to you.
Rajat, are you there?
Yes. Liba, we can take the questions. Please proceed.
[Operator Instructions] The first question is from the line of Yash Gala from Nuvama.
So my question is, as we see from the PPT, the contribution of BC model to total revenues is roughly around 10%. So I just wanted to know how will you offset this revenue once you become an SFB and you are no longer allowed to do this. That's the question.
This is Ketan here. You're right. And a couple of points on the statistics side as well. Over the last couple of years, our BC model has not been growing. Since the time we became bank, we are focusing on a B2C model and our kind of customer base. To answer your specific point, I'd like to put 2, 3 thoughts out here. One is, as Rishi said, it's around a 24-month journey where in we converting to SFB. Second aspect, which is very important and which Rishi alluded earlier in his opening comments as well is that there are lot of payment-related initiatives which can be done. Currently, which are not being -- because of our regulatory liability limit of 2 lakhs, we have not been able to do so.
So our strategic model, the way we have envisaged is around INR 110 crores or INR 115-odd crores of the BC income, which is there at a margin of around 28%. We can more than compensate that with a relatively higher margin products as well, whether it is on the payment services or also on account of the liability franchises, which we can do on low-cost funds and needless to say, there will always be a lending as well. So as a part of our strategy, we have envisaged that and the growth factors, which we are seeing, is after factoring that BC banking may not be allowed in the SFB scenario.
The next question is from the line of Dixit Sankharva from Emkay Global.
Sir, my question is around the reverse merger. So what all the assets are holding in the holding company and apart from the Fino shares, any valuation exercise we have done and what will be the time line for this reverse merger to be completed?
Dixit, Ketan here. Let me just put a perspective to that, what our Board has agreed upon is look at avenues of consolidation. So that could be anything. Consolidation can be happening through a merger, through a reverse merger, so various kind of options, which we will evaluate. At current stage, have we reached a stage where we fixed up on an option are we looking at an inter-kind of a company between the holdco and the answer is essentially no. Our understanding from -- is that the bank is a primary franchise of the group as a whole. So keeping that in the context of all the options would be evaluated. As regards to your point on the time lines, I think it's a bit too early to mention about the time lines as we've just got a note to explore it off and this -- between the various companies in the group and the bank, this would be explored, and we shall keep you guys updated as and when there is progress.
Okay, sir. Sir, other question is in the CASA. So are we looking for any tie up with the other companies for CASA?
So on the CASA side, as I mentioned earlier, we right now have our own CASA, which is through our merchants. We are now planning to start CASA with 1 partner somewhere in this quarter. And so that will be the first IF which will we do. CASA being a highly regulated KYC product, we are going very slowly on that. So one tie-up, which is already in the advanced stage should get announced in this quarter.
[Operator Instructions] The next question is from the line of Utkarsh Maheshwari from Reliance General Insurance.
Sir, I think it's good to hear that we are now actually going on the path of becoming SFB and all. Sir, I just want to understand what lucky how we are going to add up more digital partners in this journey because I think our -- as you have mentioned on the television also, you're going to be like SFB++, which is more digitally, I would say, penetrated and all and [Foreign Language] how do we see things actually moving ahead for us from these partnerships and all? Because I think we really don't have any kind of large lending so far in that meaningful manner. So how do we see it panning out for us as a top [indiscernible] strategy?
So Utkarsh, on the digital part, as we mentioned earlier, already 24% of our transaction now coming is on the digital platform, which is largely UPI platform, which is being used for digital transactions. We continue to grow that ecosystem of about 2, 3 years -- 2 years back, it was less than 1%. Now, it is more than 24%. We have already started to invest quite a bit on the Fino Pay app as well where you could see the Fino Pay app offers as many solutions as any other bank app is there. Thirdly, what we are planning to is, we are trying to do partnerships with a lot of B2B players. So 1 player we mentioned is Hubble. There are 2 or 3 more partnerships, which are also underway, which will get announced during the course of the year. So our strategy as a Payments Bank++ model is on building up the liability and the lending business.
And looking at the fact that we have a huge distribution, a lot of data for our customers and merchants and the digital ecosystem, which we are building, gives us the edge that we can really build up a very differentiated, completely new kind of a franchise as far as SFB is concerned, which can be really a [Foreign Language] digital bank. So that is what our endeavor is. And we have already made a lot of inroads of technology upgradation and everything, which I spoke about technology and digital, actually gives me a lot of confidence the way we are progressing on some of the aspects and not investing in building our brick-and-mortar system, but investing in building up a digital and technology ecosystem. So that's what we are doing. And we will continue to grow our digital stack as we move into the next direction.
Okay. But I think as far as the transaction goes, that is fine digital. But I mean, will the -- when you're going to purchase the loans and all [Foreign Language] you will need something at the grassroot level to, I mean, understand, underwrite and everything. So how do we plan that? Because over the next 24 months, if you are transforming into a bank [Foreign Language] to keep a control on that [Foreign Language].
So that is where we think we are putting together a differentiated approach. Our underwriting will be more on technology and data, largely to start with to our existing customers and merchants for whom we already have the transaction history. We already know the balances. We know what -- where they are spending, how they are spending. A lot of that will be doing. Our business on credit will be largely low-value credit rather than high value credit. Initially, it will be more of an individual and a merchant-based credit. Over the years, it will become more, from unsecured it will become more secured. So underwriting and everything else will be more technology driven and at the back end rather than taking decisions at the front end where the source -- files will be sourced because our existing customers and merchants itself will be a huge number to go for in the initial years.
That is agreeable, but do they have that kind of need in terms of loans and all? I mean merchant may have a need, but are you sure about the customer that they are taking some loans and all around it?
So we already have data of -- we show that some of our merchants -- some of our customers have loans from other MFIs, NBFCs and they have taken loans because we can see the credits coming into our bank account. So we expect that some of that customer base will move to Fino because of the saving account and the history which we have.
So you will be giving them a better rate to come back -- come to you from -- as a change?
Yes, yes, obviously, because as I mentioned and Ketan also mentioned, the fact that the -- our liability franchise, there is a much lower cost of funds compared to the other SFBs. So the benefit of that also, to some extent, will pass on to the customer, and he will be able to -- both customers and merchants, he'll be able to get loans at a reasonable price, much better than some of the other players who are there in the market.
I just want to understand what could be our cost advantage of a low cost -- when you say low cost as -- is it like 200 bps, 300 bps or something less than that over the competition?
So Utkarsh, if you just go back to the Slide 26, which I alluded to, typically, as I said, if we just continue to open with our acquisition strategy, we can build anywhere in the range of around INR 7,000 crores of liability base by not abnormal numbers of CASA. We are looking at anywhere a differential in the range of 250 basis points from the normal SFB. It can be more as well, but that is a differentiated approach, which we are going to.
Okay. Just last question before I just come back to the queue. You mentioned about that Fino app, right -- Fino Pay app. So if I want to just understand how many new users have signed in this current quarter and what kind of offering is available to them because I think you have mentioned only 7.0 lakh average users quarterly. So what is the new addition to the app, if you can just help me out of that?
Yes. I'll come back to you with the exact number. But 2.1 lakh have been the new users in this quarter.
Okay. And I mean, basically, this is more like this app is going to be available for all the users. That is how you have to...
At least you have to understand that our Fino Bank customers are not the top end of the market. They are the lower pyramid of the market. So for us, when we see a large part of them nearly 40%, 45% of our overall customer doing UPI, and about 20% of them on Fino Pay, that gives us a very encouraging response to the digital story, which we want to build because somewhere India is becoming more digital. So that will help us in -- as we go into that journey will help us in our digital credit portfolio, which we want to build.
[Operator Instructions] The next question is from the line of Gautam Shroff from Nuvama.
My question is that we are focusing on high-margin on network business. And this is one of the fastest growing that I understand the portfolio, CASA and CMS. But our overall gross margins are down 100 basis points year-on-year and 150 basis points quarter-on-quarter. How do we explain this?
So this is more with regard to, well, Ketan will get into more details. But from my own, this is just the product mix change, which is there, which has happened. One item in case of CASA because the chip costs have gone up substantially in the last 6 months to 1 year, maybe more than a year now. So that has also impacted to some extent, our CASA margin. That's the only impact on the CASA margin because of the increase in the chip costs. Apart from that, it's largely a product mix issue, which is there between the overall business.
I think one point which Rishi essentially explained was on the CASA chip. However, I just want to add 1 point out here is that this is important. While CASA chip costs will continue for a larger part of this year, our renewal income, which is now 38% of our total CASA comes at a 75% plus margin. Last year, the same renewal income was in the range of around 32% of the total CASA income. So there will be an offsetting which will come, if not fully, but to a large extent. A couple of more points in terms of this thing is, Rishi just mentioned earlier in his comments as well that we intend to keep our own account and our open banking in a particular range. Just to give a number on that, and that will explain on a Y-o-Y basis, own and API -- our own and open banking in Q1 '23 was 62% and 38%, in Q1 '24 it is 65% and 35%.
In the immediately preceding quarter, which is quarter 4 '23, that percentage was around 67% and 33%. Definitely, we want to keep it range bound and we will continue to keep it range bound. That definitely has an impact, which is on -- coming on our bottom line as well. Second aspect, which I would also just want to trade off is typically, if you go by the trend, first quarter is the profitability, there is a very steep growth which comes essentially, and this is on the expenses side as well. Our operating cost, which is in quarter 1 '24 is around INR 69.6 crores; in Q4 '23, it was INR 62.7 crores; in Q4 -- Q1 '23, it was INR 64 crores. So somewhere over a period of time, and that's how our business model is also generated or made to be, is that the margins, whether it's patent margin. And I know what you are referring to, if you are saying sequentially, yes, sequentially, EBITDA was 13.3% in last quarter, now it's 11.6%. However, if you -- the nature of our business is such that quarter 1 is typically the lowest in terms of these margins. And as we go during the year, it peaks in Q3 and Q4.
The next question is from the line of Renish from ICICI.
Congrats on a great set of numbers. Sir, just 2 questions. One, again, on the SFB corporate restructuring rate. So what will happen to the micro finance business we have under the parent?
Renish, Ketan here. Technically, I think this is agenda or the headache of the really holdco and holdco, when they have initiated this conversation and corporate restructuring, they are well within -- aware of the regulation that there cannot be an NBFC and a bank coexisting within the same group. So I'm sure that at a holdco level, there is some solution, which is coming out on the NBFC MFI .
Got it. And let's say, when as a company, we want to apply for SFB license. Will we be applying through the existing entity or from the parent?
We'll be applying through the bank, Payments Bank.
Okay. We will be applying through the operating company only, right?
Yes. So the Payments Bank can convert into an SFB. If we were to apply as a separate entity, while regulation allows Payments Bank and SFB to coexist within the same group is my understanding, but we would like to convert from a Payments Bank to an SFB, not apply as a separate SFB under the holding company.
Renish, the point on here, which we mentioned earlier as well, that typically by the regulatory guidelines, a payment bank, which has completed 5 years of operations can apply for the conversion. And that is essentially the window or the avenue, which we are going to utilize.
Okay. But then what among the promoter holding, I mean, if we do reverse merger, then practically, there will be no promoter. But then for applying SFB, we will need promoter, right?
So for Payments Bank, we have already completed 5 years, which is a required scenario for a promoter to be identified. RBI looks at diverse holdings. And you would have seen RBI has approved quite a bit of holding companies and subsidiary reverse merger. So we don't expect that to be a challenge because we are already meeting the 5-year criteria of a promoter under payments bank.
Got it. Got it, sir. And sir, just a last question on the SFB part. So I do hear you about our SFB will be differentiated from all of the other SFBs in terms of the continuing with the asset-light model, but do you foresee any, let's say, P&L impact because of that on the OpEx side? Maybe it could be towards, let's say, a licensing expense or some bit of expense on tech, et cetera?
Renish, Ketan here, I'll just try and take this. Let's just start off with what we said is overall process is a 2-year process. So let's just go back in a scenario wherein is there any kind of a P&L impact coming in the first 2 years or the immediately 2 years of operations. The answer is no. So second point, which essentially, which Rishi also alluded in his comments was that from a capitalization perspective, as we speak, we have enough capital and more wherein we can essentially, and it's also about the accruals, which are coming to us in terms of the profitability, which we are yielding. Third aspect is, yes, there can be -- there will definitely be some sort of technology investments, which will come. There will be a credit team. As I think earlier, Utkarsh was also indirectly alluding to. So all of that will be built over a period of time.
However, the benefit or the differentiation besides the low cost of funds which we discussed, it is also about what we said earlier, the way we are looking at is a Payments Bank++ model. 75% to 80% of our income, even in the first couple of years of operations on SFB would be through Payments Bank. So somewhere our lending institution or the model which we are building will be largely -- the payment bank engine will actually fund it off as well. As regards to how the specifics, I think those are being worked out, and we will keep you updated as we go forward towards this journey.
Got it. Got it. So let's say to summarize this, I mean, SFB from being 1, let's say assuming today's day 1 and we apply for SFB, there will be no impact on the P&L?
Yes. I think we just mentioned -- someone earlier said as and when we get the SFB license, there will be a regulatory point which will come whether BC banking can be allowed. As per the current regulations, BC banking cannot be allowed. That is constituting around 8% to 9% of our revenue that we have to work out. However, the incremental revenue, which comes at the time of SFB, not only on account of the lending or the cost of funds, which we have explained, but also on account of payment services model, is far more to compensate any of these aspects.
Okay. Okay. Got it. So I think the [indiscernible] banking revenue.
[Operator Instructions] The next question is from the line of Shreya Shivani from CLSA.
Congratulations on a good set of numbers. I have 2 questions. First is on the CASA book. Can you give an update against the INR 1,200 crores of CASA deposits that you had last quarter, which included customers and merchants. What is it as of June and if you can help me understand the -- you've given the renewal income of it. Can you give me the new subscription revenue part of it as well. Now my main question with the CASA book is that if I go with your FY '28 aspiration of about 27.5 million CASA account, if I project it in my future and if I use the same rate to project my deposits on balance sheet, I'm not able to reach the INR 6,800 crores. So obviously, you are looking at a higher CASA balance per customer or per account. So what is going to be the strategy?
Are we looking at newer customer segments? If you can give some color around it because, obviously, the balances are growing -- the deposit book will grow much faster than the number of accounts, that's first. Second is on, again, coming back to the loan question. Instead of going into the SFB side, I think for the past couple of quarters, you'd been talking about how you're doing multiple pilot programs on gold loan or other loans with your merchants. So if you can help us understand and probably it will give us a little bit more comfort on how merchant bank -- sorry, merchant-driven banking model can do loans. I can understand underwriting and disbursement of digitally [Foreign Language], but collection and everything, could you tell us any learnings you had through your pilot program, so that is easier for us to understand how you will be scaling up your lending side? And how much will your lending book become by FY '28, if you can give us any estimate on that?
Shreya, I've been writing what you just said. Let me just go in sequentially. In terms of our deposit balances, on an average, and I'll say both average and period end, so that it is a very -- it gives a right kind of perspective. On a sequential basis, our -- between March and June on a period-end basis, our deposits are largely flat. However, if you saw on the average deposit side, average deposits between these 2 quarters have increased by around 13%. And that's the point which I essentially made. Now your question, remaining on deposit, how are we growing? I again, take you back to the Slide 26, where we've just put our thoughts. If we are opening anywhere in the range of around 35 lakhs account in that range, whatever that number we've put and our average balances continues to increase, year in '28, we are saying that from INR 1,200, which is the current average balance, we'll go to INR 2,500. That will be a staged manner.
But even if we keep on opening it off, so that actually gives us a good amount of impetus coming on our average balances, and that's how the liability franchise or liability balances, which we will book. You and I both know that in terms of EMD or the merchant business, these are added numbers. So we can't even comment at what 31st March and 30th June. We are focusing on the average balance out there essentially. Remaining on liabilities, you mentioned it that are we looking at increasing the profile of our customers? The answer is yes, we are. Rishi mentioned that we opened some 34,000 digital savings accounts, and we are widening our net as well, whilst focusing on the real Bharat or the rural Bharat where we are there. However, there is an expectation built in our model as well that an average balance of the customer will go double from here on over next 5 years.
That is in regards to our entire CASA strategy or the liability strategy. Everything else is moving in a variable factor, one thing emphasis is about the new customers, which we are opening up. Your second question is on the lending side. If I did understand your question, you were saying that how are we going to build the lending and by FY '28, how do we expect or what should be the lending book, which we are there. I'll just put a thought on our strategy, essentially, as Rishi earlier said, is that it will be largely to the known customers. We have -- by the time we go into SFB, it is likely that we are expected to have somewhere in the range of around 20 lakh accounts or in '26, '27, we are expecting 2 crores of customer liabilities. Now our first aim would be to monetize those.
How will we monetize? Most of these guys will have data. We will have data with them for at least 3 years, if not more, 2 to 3 years. Going back to the point which we are saying that our larger book would be the merchant loan, which we are looking at, the merchants who have been interacting, who have been earning essentially through us is something which we will look at. So that becomes the largest component of the book. Other thing is the 2 crore customers who are getting high-cost credit currently, those we will try and convert to us.
We have a distinct advantage in terms of low-cost liabilities, which we've explained of and gradually, we transit into auto loan and more secure products as well, which will be coming through. So that is our plan in regards to the credit which we are looking at. We are not going to go aggressive in terms of credit. All of this taken together will result in still lending income being in the range of around 20%, which means that our expectation, if I'm saying in my opening statement that we go 20% year-on-year in terms of our growth. Our payment business and some of the new avenues, which comes to us on account of the INR 2 lakh restriction getting lifted will essentially help our Payment Services to grow as well.
Yes. So the one thing that I was trying to ask over here is I understand the underwriting, disbursement and all of those that I think you've explained it in your presentation as well. But particularly on around collection, which may become a heavy part on your OpEx because you only have 2,000, 3,000 employees on your payroll. I mean how will that work out? That will be one of the key questions when you start a lending business?
Shreya, you're bang on. So from a collection point of view, 2 ways in which collections will happen. One is that because we already have an account with the people, with our customers and merchants, the same account can be used for collection purposes. Over and above that, you would recall CMS is one of our big products in which we do a lot of collections for NBFCs, MFIs and likes of other companies with more than INR 5,000 crores now on an average, we are collecting every month. We believe the same engine can be used for collections as well when we get into the SFB model. But largely collections will be coming from the direct credit, which will come into their account.
Over and above that, if required, we will also set up an ecosystem of agencies, if required, at a later point of time, depending on the collections as somebody asked us earlier, because of our cost of funds being much lower than the other competition, which is there in the market will help us to offer loan also at a much reasonable price compared to the other competition, which makes us believe that the collection should also be reflected from the fact that our loans will be at a lower price, will also result in a higher collection from a review -- rating review point of view as well. So all -- so 3 things. When we credit to the account, we have already a CMS engine, which is running. And thirdly, because our loans will be more affordable compared to the other peers, which should result in better collection. So those are the 3 things I can say as of now. But over the period, if required, we'll have to build up a collection agency model, which bases our experience we have seen, we have been able to build it quite significantly otherwise also.
Got it. Got it. So just last one clarification. Is your banking model, is there an equivalent we can look at somebody who's doing merchant-driven loan model anywhere across the globe, any peers...
Yes, there is one company in Brazil, which is Nubank. You should look at that model. That is very similar to what Fino -- that Nubank was what very similar to what Fino will be. So they started with transaction banking through a merchant model and now they got into credit, and they got big into credit card and everything else. So that is -- I think they have some 7 or 8 crore customers. Their platform, one of the largest ecosystem, which has been created in Brazil, which is falling in -- Fino is in a way -- independently, we have been doing what we have been thinking independent of that, but very similar road map and similar business lines like Nubank. Look at that. It's a very interesting company.
[Operator Instructions] The next question is from the line of Deepika M. from Axis Bank.
Sir, I wanted to understand what is your target of maintaining your cost-to-income ratio, although I find it to be low even for a payments bank, but after getting into SFB, given you may not be able to do BC banking or you have to get an agency for collection and employees will also increase. So what's your target on cost to income? And my second question was current average balance in your CASA account is around INR 1,200 and aspiration is for INR 2,500 for FY '28. So how does the INR 2 lakh balance limit removal help you given that you will still be a rural-focused bank?
Deepika, Ketan here. Let me just take the first question first. In terms of cost-income ratio, you are right. 25%, 26% for a retail bank is lower. However, I think just go back to the genesis of Fino. We have always maintained that we will be an asset-light model. The way it essentially works is rather than branches of brick and mortar, as Rishi said in his point, we operate through these touch points, okay. So that is something which will continue. If I just go back to my opening statements, I just said that our model is structured in a manner, and we've seen that testimony of last 12 quarters, that if our revenue grows by 20%, our bottom line is scheduled to grow by anywhere in the range of 2 to 2.5x of that growth. And that is something which we are dovetailing into our SFB model as well.
In terms of why we will continue to invest into technology and digital, which we've done on a phased basis, and we will do that as well. But we will not lose the asset-light nature of our business, whether it is in the Payments Bank [ Avtar ] or the Payments Bank++ [ Avtar ], which we are looking at 2 years from now or at least 2 years from now. Now the question comes is, how does a typical SFB function with such low operating cost. The answer to -- year lies in 2 aspects. One is the question which Utkarsh earlier asked and even the preceding one, I think Rishi's answer to Shreya. I'll take the credit underwriting or the collection piece in a very simplistic manner. I think Rishi explained in the earlier question is, it's not that typical heat on street approach, which we are going to adopt. We have our merchant network. We have our back-end processes. We will leverage that. We have the experience on the CMS piece as well where we are doing more than INR 15,500 crores of throughput or collection, if we can say, in a quarter.
So all of that will dovetail into our collection strategy without making it too asset heavy. In terms of disbursal or in terms of normalizing deposits, currently, we have INR 1,200 crores of deposits without any significant branches. Sorry, these are collected or these are mobilized through our merchant point only, and that is what we dovetail or we will continue to doing it off. Lending anyway is simple. Sourcing of lending is simple. It's about the quality of sourcing, which is more important. So if our merchants can actually mobilize deposit, and it comes back to the point. I'll address your average balance points separately. But if we happen to open 2.5 lakhs plus accounts on a monthly basis, lot of these aspects in terms of liability building even for SFB will be sorted just by the business flow, which we have currently built through.
Now coming to your last point, yes, in Slide 26, we have mentioned it off that we will be looking at increasing the customer base. Now does it mean that we will be shifting our focus from a rural to a nonrural kind of a base? No. Are we going into the upper [indiscernible] of the demographic Indian population, we will gradually grow into the upper kind of a business model as well in terms of liability franchises. There will be some deposits, which will be there more than 2 lakhs definitely. However, more than 2 lakh point, which Rishi and I both alluded was to facilitate a B2B business.
Once the 2 lakh deposit balance is gone or that restriction is gone, it will help us in growing our payment services with B2B, where a lot of business currently is getting restricted because of this. So to answer, asset light is the core, and we will always continue to be that. Operating cost metrics very, very super important for us. We will not spend unless there is a requirement. We intend to continue that DNA in our SFB as well. And 2 lakh limit restriction helps us in our B2B business. Digital overplay, which we are doing will help us in terms of increasing our balances from INR 1,200 to INR 2,500. That's my perspective.
Got it, sir. I have one more question. So can you elaborate on how you get your cost of deposits, 200 bps to 250 bps lower than your competitor?
Shreya, again, as I said, if we go to Slide 26, we have to just put a perspective out here in FY '23, and this is I'm saying previous March, we had 75 lakh accounts. Now we have around 83 lakhs. Our aspiration number of FY '28 and I'm just reading it from the slide is around 27 million, if we are adding 3.5 million to 4 million account. On a steady average balance, also this leads to a number which is around 4x the existing numbers. On that, our average balances, which is INR 1,216 currently, if we can bring out to INR 2,500 for the reasons which I just said, I know that deposit balance will become INR 6,875 from INR 1,200 now. Our belief is that in the target segment where we are or our focus is, we may not have to shell out too much of cost of funds if our acquisition engine works the way we have envisaged or our acquisition engine works the way it is working for last 5, 6 quarters.
The next question is from the line of [ Vishrut Bhagat ], an individual investor.
I just wanted to understand as to how saturated in your opinion is the AEPS market opportunity and going forward, do you feel that there's room for AEPS to grow beyond the rural areas to places where instead of maybe building an ATM distribution AEPS is a better growth. So has it saturated to a point where even as per your strategy moving towards UPI is going to be the way forward for even the more rural startup?
So when we look at the India opportunity, see India has 1.4 billion population with nearly 800 million people who don't have proper access to financial services and banking. And we have just started the Payments Bank 5, 6 years back. So the opportunity is quite big. And from an opportunity point of view, we are just focusing on right now on transactions and now moving to accounts. The monetization piece which will come from the lending is about to start once we convert from a Payments Bank to an SFB piece. As far as Aadhaar Enabled Payment System, AEPS, is concerned, government is moving very fast in terms of subsidies and disbursements, which used to happen in kind to now subsidies and grants, which are happening into the bank account of the customer directly, which is the direct benefit transfer. So AEPS volumes are expected to grow from the last year levels.
We have seen substantial growth in the AEPS in the year '21, '22 and to some extent, in '23 because that was a migration or the thinking process change in the government from transferring the money through the old system to the direct benefit transfer. Now that part has been already taken care of. Now whatever incremental allocations are happening on the budget side, whether on PM Kisan, [indiscernible], scholarships, that are now moving into AEPS framework. So AEPS has become the de facto framework for all kinds of direct benefit transfers, which are there. And looking at the success of direct benefit transfer, we believe that this ecosystem of AEPS will only become stronger and better over the period of time.
Yes. And going forward, do you see a primary driver of deposits coming from your digital channel or are you still, like, what -- how are you going to be investing in terms of acquiring those deposits...
Our primary channel continues to be the physical network of merchants, which we have built up. So they will continue to -- we are the primary source of accounts for us. What we are now pushing more is moving people who have been acquired physically to work with us on digital framework, whether on Fino Pay, whether on UPI because we have seen people who are active on digital platform, even though we have acquired them physically, continue to do more transactions, continue to have more renewal, continue to have more balances. So you can say we're a very phygital kind of a bank, physical to digital is the road map, which is there. Over and above that, we have 2 sources through which we acquire a digital customer. First is through our own B2C piece, which is there through the marketing initiatives. And the second is through the partnership initiative, which we have just started with Hubble. As I mentioned earlier, we will probably have 1 or 2 more tie-ups in this financial year on account of that.
The next question is from the line of Sachit Motwani from Motilal Oswal AMC.
Just one question. You mentioned about B2B within the payment services. Can you help me understand would this be margin diluted?
Sachit, again, as I said, the way we have to look at it is, typically, our payment services will replace or we will use it more because if we get more than 2 lakh kind of a thing. There are 2 aspects which we are looking at it. We have in the past said that our own to our open, we want us skewing towards our own. We've been largely successful to keep it range bound. I can say that the payment services margin would be far, far better than our open banking margin. As regards to the other products, I think it is as and when we are launching our payment services, which goes beyond 2 existing, we will have a look at that coming through. However, it will definitely be better than our sort of open banking margin, and it will have a positive impact coming on the bottom line.
Got it. Sir, in the interim, would you have to keep a higher -- would you need a higher float as well?
No, Sachit. Actually, for doing this business or for that matter, any businesses for us, we enjoy higher float invert coming. We are not required to keep any float on [indiscernible] account if you are alluding towards, okay. In the -- until now in our only Payments Bank [ Avtar ], we have not specifically emphasized on liability building. This is what it comes to us based on the acquisition which we do. So if your question is, will it lead to a benefit in terms of higher float? The answer is essentially, yes. On a staggered basis, there will definitely be a benefit which will come on that. If you have to maintain any float for facilitating this, the answer is no. That business is somewhere where it will give us float rather than we have to put a deposit or anything else with anyone else.
The next question is from the line of Deepak Agarwal, an individual investor.
My questions are to Ketan. One is, we have seen an 11% increase in the OpEx. Is there any major drivers of that? Is there any one-off into this? And second is, how much is our total borrowing as of June '23?
Yes. Deepak, yes, you're right. On a sequential basis, we have seen 11%. I mentioned the numbers earlier as well. That it's an account of -- our Q4 was 62.7%. We have 69.6%. Couple of points which we have to be cognizant out here is in the Indian sector April dovetails the growth in terms of the employee emoluments as well. So of this 10.9%, if I can just stay around 5.5%, 6%, if not more, is on account of the employee emoluments, which we have started from 1st April onwards. There is one more aspect which has come out here is and I mentioned it in my earlier comments as well that AEPS industry as a whole is going through a cloning kind of a scenario. This is an ecosystem challenges, which have come across. So there has been some operational loss not only for us as players, but all players across. It depends for some players, it has come in last quarter.
For us, it has come in this quarter. So that [Foreign Language] would be in the range of around INR 2 crores. I would not want to call it a complete one-off. However, this is a number which is far higher than what we've anticipated of. So these are the 2 reasons on the main reasons on the sequential differences between on the operating cost as well. Sorry, your second question, I missed was on the borrowings piece. Yes. On the borrowings piece, if I go between March and June, the borrowings have increased by somewhere in the range of around INR 400 crores. My investment together has increased by around INR 500 crores or INR 488 crores to be very precise. So wherever we are getting an opportunity to leverage our payments banking license, we essentially do that. And currently, our yields are good so that our borrowings pricing is completely outpaced by the incremental yields, which we are getting on the tables. Having said that, just to reiterate it off, we do not take long-term positions as a payment bank. We're not allowed to take long-term position and run a mismatch of ALM book.
As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thank you, everyone, for joining us. I know it's a busy week as far as analyst calls are concerned, earnings calls are concerned. But let me reiterate the fact that we had a good quarter, and we continue to stay focused on a 20% growth target. Our DDD strategy on distribution, data and digital will become the cornerstone for -- as far as the SFB transition is concerned. As we mentioned, SFB transition, first step, we have taken by taking the Board approval. Now we'll be applying to RBI and then build up the model and the technology over the next 2 years.
And then the SFB operations will start subject to all regulatory approvals. As we mentioned also, our SFB will be more a transaction focused with lending as an opportunity. And I mentioned always that we run payments and liabilities like a bullet train and lending will always be like a goods train. So we will be very focused in terms of the approach we take on the lending piece. Liabilities will continue to be the focus for us as we want to build up a liability first bank and then do lending on top of it. With this, I again extend my warm wishes and thank you to all the participants. Thank you.
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.