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 the Q3 FY '23 Earnings Conference Call of Fino Payments Bank 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, Rutuja. Good afternoon, everyone, and welcome to Fino Payments Bank earnings call to discuss the Q3 and 9 months FY '23 results. We have on the call with us today, Mr. Rishi Gupta, Chief Executive Officer; Mr. Ketan Merchant, Chief Financial Officer; Mr. Anoop Agarwal, Financial Controller.
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 risk that the company faces. I now request 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, and thank you for participating in our earnings call today. I want to start with declaring that this quarter has been highest profitability quarter for Fino. Our 9 months profitability at INR 43 crore is higher than full year profitability of FY '21, '22 and a growth of 71% over the previous 9 months.
Now let me go into the thought as to the reason for profit growth. As I have said in the past, for Fino philosophies is as following: appropriate pricing of products and limited freebies, focus on higher-margin products and lean business model with operating leverage in play. Our regional focused approach to bridge the gap between India and Bharat has gained scalability, boosting our faith in our capability to comprehend the demand of our clients.
Our recent growth has underlined the trust placed in us by our consumers in the form of customer loyalty, allowing us to achieve new heights in the years ahead. Having completed 5.5 years of operations as a payments bank, we aim to provide simplified banking products to millions of hard-working Indians. With financial inclusion and profitability in our mind, our products like DMT, which is domestic money transfer, as our enable payment systems and micro ATMs cater even to the most remote segment of the population outside of banking hours, thereby helping us to easily accessible anytime anywhere.
CASA, which is current account savings account and CMS, which is cash management services, is a high-margin product and our key focus product. We have seen good growth coming in the recent quarters, driving our profit margins.
As a result, our product mix assists us in generating value for all the stakeholders coming from diverse backgrounds and help us stay true to our vision and focus on growth and profitability. We continue to aggressively progress our acquisition phase wherein we open new accounts every 10 seconds and also focus on enhancing distribution network, banked and under-banked population through our distribution network, penetration with increased merchant count.
With digital gaining traction in rural India, we intend to reach out to our customers who are fast adopting digital modes of communication, entertainment and payments. As a result, our asset-light business model, our diverse product offering with solid mix of high volume and higher profit margins, products backed by a world invested technology stack provides us a distinct advantage in preparing us for the next phase of our expansion.
As I started off with, we delivered a very strong performance in 9 months FY '23, laying a strong foundation for the years to follow. While Ketan will soon go through the specifics of the quarterly performance, I would want to take this chance to quickly review a few highlights.
As you can see in Slide 4 and 6, quarter 3 is our most profitable quarter till date. Our PAT has grown 38% year-on-year with EBITDA at INR 38.9 crores with an increase of 27.5% quarter-on-quarter and 50.2% on year-on-year basis.
This quarter, our net revenue margins stood at 32.1% in quarter 3 FY '23 from 30.9% in the last quarter, and it also exceeded our expectations. If you would remember, we were at 30.6% margin in quarter 1 of FY '23. So there's nearly a 150 basis point jump from quarter 1 to quarter 3 on our net revenue margin. This is focused effort on product mix to enhance profitability.
Our profit margins improved from 4.6% in quarter 2 FY '23 to 6.1% in quarter 3 FY '23. In quarter 3 FY '23, we achieved an annualized ROE of 15%, which was in line with our guidance. CASA, our high-margin product, had 7.6 lakh new accounts opened in quarter 3, taking our total accounts to 67 lakhs as of December 31, 2022, up by 71% on a year-on-year basis, laying the groundwork for a better -- laying the groundwork for a good -- laying the groundwork for a great potential in cross-sell and upsell. My personal belief is that there is a great potential for us to further enhance the customer equity.
During quarter 3 '23, we launched our digital savings account through our FinoPay app and have received good response, again, endorsing the fact that we are on the right track for building up the digital stack. The loyalty of our customers was another significant aspect that was highlighted this quarter.
On 9-month FY '23 subscription and renewal revenue reached INR 111.8 crores, exceeding the full FY '22 numbers. Since the cost associated with renewals is minimal, it contributes directly to our bottom line and is reflected in our results. Our confidence has grown as a result of the rising number of customer renewals. We now feel that the guidance we had set it as well within our grasp.
While digital is catching up in rural areas, cash remains primary method of payment, resulting in our cash CMS report doubling year-on-year to 118% in quarter 3 FY '23. In quarter 3 FY '23, our distribution network grew by 6% with a total merchant network of over 13 lakhs. Our digital footprint increased even further and climbed by 163% on a year-on-year basis in quarter 3 FY '23.
CASA and CMS, our high-margin products, have achieved 58% and 40% margins in quarter 3 FY '23, respectively. With business momentum being good, we continue to maintain a strong growth outlook with profitability being our prime focus.
Over the next 3 to 4 years, we intend to increase our customer focus ownership business, along with high-margin products, contributing larger part of the revenue. During this time, as we are progressing in our digital journey, we want to also become digital savvy bank from customer experience perspective, allowing us to capture more cross-sell opportunities.
For coming quarters in FY '23, '24, our priorities are continue to aggressively push the customer acquisition, enhance partnership and focus on CMS growth, digital framework enhancing -- enhancement through fintech partnerships, expand the product suite to ensure that our target segment can get one-stop shop for all financial services.
Overall, I can promise you that everything we do at Fino is aimed at ensuring the financial security of every person by establishing a sustainable and credible payments bank and also enhance the shareholder value in the long term.
With this, I would like to hand over -- hand it over to Ketan for his comments on financial performance. Thank you.
Thank you, Rishi. Good afternoon, ladies and gentlemen. This quarter has been good for us. I say this not only being the highest profitable quarter but also for a larger reason, where our stated objective of steering business in a particular direction seems to be getting well executed.
In addition to growth, another important aspect for us is consistency. We've been delivering consistent profitability for past 12 quarters. Coming to specifics and numbers, I will split this into 2 parts. One is YTD FY '23 perspective and a quarter 3 snippets.
To begin with on YTD FY '23, I would like to state that our distribution network, as Rishi said, is our core strength, and our merchant base is rapidly expanding. Our distribution point currently has over 13 lakhs merchants and a 50% YTD growth. Our throughput grew by 40%, and revenue grew by 25% on a YTD basis.
Whilst I should say that COVID did play its part in the previous year, rebound of our remittance business post COVID is largely in line with our expectations. Key drivers for business for this period are CASA. The new number of accounts have grown by 58%, and revenue has grown by 99%.
In my previous call, I have mentioned about annuity income, and Rishi also emphasized this. Our annuity income is being created through renewal. Numbers are a testimony to the same. This is interesting, on a YTD basis, renewal income has increased by 2.8x from INR 16.8 crores in FY -- 9-month FY '21 to INR 47.6 crores. This is where we are building a sustainable business.
CMS is another growth factor as Rishi mentioned, wherein our throughput has increased by 105% to INR 33,000 crores for the period. Remittance business during this period has increased by 27%. And just to reemphasize, remittance, along with cash withdrawal business, continues to remain our funnel for customer ownership business.
Remaining on YTD performance, points to recon are operating leverage and the asset-light model advantage. Overall, operating overheads have increased by 3.1%. And if I include interest and depreciation, the total cost has increased by 12%. The difference in revenue growth, revenue growth, which is 25.2% and total cost growth, including interest and depreciation, which is 12%, has been envisaged in our model is leading to a higher PAT growth of 71%.
The asset-light lean model is the USP of our business and along with acquisition and monetization strategy, a key component of our profitability. As Rishi mentioned, digital business is key for us, and that is seen in numbers as well.
As of December 22, 36% of our 60 lakh customers were active on digital payments. Presently, digital throughput accounts to 20% of our overall 1.87 lakh throughput in for a 9-month period.
Now moving on to quarter performance. Key points are as follows: 14.2% of revenue growth is on the back of 105% growth in CMS. Mind well, this is at a margin of 40%. CASA revenue on a Y-o-Y basis for the quarter has increased by 81%. Number of new accounts have increased by 46% on a Y-o-Y basis. Margin for CASA continues to be around 58%.
Total deposits have increased by 26% on a Y-o-Y basis. We are not only concentrating on account opening but also on diversification in terms of geography. Madhya Pradesh accounted for 22% of new subscriber accounts ahead of Uttar Pradesh, which was 15%; Bihar, 14%; Maharashtra, 8%; and Gujarat, 7% in that order. Our focus in times to come is to further tap East and South market, wherein we see an enhanced potential to grow.
CMS stats for the quarter demonstrate the excellent leadership position which we have developed in this segment. Our revenue for Q3 FY '23 was INR 29.3 crores, up 21% quarter-on-quarter and 105% Y-o-Y. We have diversified partnership with business like e-commerce, retail, supply chain and logistics partners. CMS clientele has grown from 161 partners on September 30, '22, to 172 partners as at 31st December '22.
In the constantly changing world of cash withdrawals, AEPS has been exhibiting growth. The Fino ecosystem throughput increased by 21% Y-o-Y, which helped us to increase our market share from 11% in quarter 3 FY '22 to 12% in quarter 3 FY '23.
If you refer to Slide 12, it displays our product mix, which has been growing and shifting towards high-growth and high-margin products that is CASA and CMS. Just to be specific, CASA and CMS now account for 26% of our revenue as at quarter 3 FY '23 compared to 16% in quarter 3 FY '22.
In earlier calls, we have mentioned about our intent to strategically shift business from open banking to own channel. And we have been able to execute the strategy wherein our open banking split has shifted to 65 to 35 from 64 to 36. I repeat, 65 is own and 35 is open banking, a shift from 64 to 36. This is in line with our endeavor to enhance profitability to own high-margin products. Point to note is that the focused product mix approach has resulted in gross margin of 32.1%, increase of 120 bps as Rishi mentioned.
Furthermore, in reference to Slide 8, I would like to mention that scalability is resulting in our cost income ratio to 26%. And our objective is to take this to 25% levels, thereby facilitating enhancement of EBITDA and PAT margin.
EBITDA margin for the quarter increased to 12.4% from 10.1% in the immediate previous quarter and 9.4% in quarter 3 FY '22. PAT margin for the quarter has increased to 6.1%.
One point which is to be reckoned is that while profitability is our driving force and in our DNA, I would like to reiterate that on technology and digital front, we continue to invest to build stack and enhance our platform for further scalable potentials and that will be on a profitable basis as well.
Before we go to Q&A, I'd like to summarize financial performance in 3 parts. One is CASA acquisition and related annuity income being set, product mix being skewed towards high-margin products, thereby leading to margin enhancement and finally, operating leverage in the play.
Thank you.
[Operator Instructions]
The first question is from the line of Shreya Shivani from CLSA.
Hi. Hello?
I'm sorry to interrupt you, ma'am, but your voice is breaking. Can you please check?
Hello?
Yes, please go ahead.
Shreya, you may ask your question.
Hello?
Yes, Shreya, please go ahead with your question.
Yes. Congratulations on a good set of number. I have 3 questions. First is on the AEPS throughput.
Shreya, I'm sorry to interrupt, but your voice is breaking.
Yes, I'll call from another line.
[Operator Instructions]
The next question is from the line of Renish from ICICI.
Congrats on a good set of numbers. Sir, just 2 questions from my side. So one on the run rate of the CASA customer acquisition, which remains of like sequentially at around 10.6 lakhs. So how one should read this data point? I mean, despite the higher renewal which essentially means that the new-to-bank customer acquisition might have slowed down. So sir, what is happening here in terms of the, let's say, the run rate on the quarterly basis, which remains light?
And do you have one more question? Should we take both the questions?
Yes. And so secondly, in the revenue split we have the other revenue, which is now contributing almost 11% or almost INR 33 crores of the total revenue, so can you just tell us some more business about what kind of a revenue consist of in this other line item?
So thank you, Renish, for your question. And I will answer the first one. The second, I will leave it to Ketan to answer on the revenue split. On the CASA run rate, there are 2 things which have to be looked into. One is the new to CASA, and the second is the renewal rate.
You can see the renewal is already 75% of the new acquisition, which we have done in the 9 months. So renewal is as important as we look at the new acquisition. In fact, renewal gives us a better profit margin compared to our new acquisition.
Having said that, we have been consistently doing 2.5 lakh accounts per month. And we believe that is a good run rate, so to say, I would tend to differ with you in terms of slow that there has been a -- some things of a slowness in terms of NTB. I think NTB of 2.5 lakhs on a consistent basis is a good benchmark to look at.
Obviously, we are working towards how we can increase it further. In this quarter also, we look at more accounts opened through digital acquisition, which we started only end of December. So that's a new channel for us in terms of acquiring customers.
Our run rate will somewhere be between 2.5 to 3 lakh on a consistent basis over the next 9 to 12 months is what I would say. But that's a good number to track, and that's a good number, which we believe, if we can continue to maintain that number on the new acquisition.
No, no. I absolutely agree, sir. We can also say like reaching 3 lakh customers on a monthly basis is a good number. I just thought since it remained flat in terms of the absolute number, I thought let me just check what is happening there.
No, there is nothing which is anything specific. It is that the new acquisition is at 2.5 lakh number, we believe, is a good consistent number we would like to aim at and obviously, maybe grow another 10% to 15% over a period of time.
Got it. And just -- sorry, just to follow up on that. So when we say 2.5 lakh to 3 lakh customers on a monthly basis, so one should read this in context with the merchant acquisition run rate also? Because once we start adding more merchants, ideally these numbers should go up, right?
Yes, absolutely, you are right. Everything for us is based on the merchant onboarding, which is there. So as the merchant onboarding numbers will keep on increasing, we should look at a higher customer acquisition, which is there.
But in terms of merchant acquisition also, there are -- as we keep on adding, there are some droppages also which happens during the course of the business. But merchant onboarding continues to be our biggest input driver for all our businesses, including CASA.
Got it, sir. Okay. On this other revenue line item, Ketan if you can highlight?
Renish, I think I'll start. I have noted your question about the other 11% income, which is 1 per quarter and around 9% for YTD. The answer to that is an addendum of what Rishi said. Rishi mentioned about the CASA, the new acquisition which we are doing.
I think one point which I also want to tell out here is that in addition to CASA for us is now divided into 2 parts. If you recollect the earlier conversations, we were saying CASA is transacting. We have subscription income coming as well. Now we are also gradually focusing on enhancing the balances as well.
There are 2 components which has come on this 11% kind of a thing. One is the exchange -- the interest rate cycle, which has gone up. That has essentially helped us. Our CASA balances, as I said, or other total deposit balances, as I said, has increased by around 66%, I quoted in my earlier speech as well. That is also leading to some float income, which is essentially covered out in the others 11% out there.
In addition to that, we are also trying to enhance it. I should say that on a year-on-year basis, our average balances have increased -- per customer has increased from INR 1,100 to around INR 1,495. So that is helping us to enhance our float income.
We are also launching -- or we've already launched a digital savings account as well, which -- where we expect the average customer balance being higher. So both taken together, the CASA subscription, CASA renewal as Rishi explained and the float income coming on account of our balance sheet, which is constituting largely this 11%, all these 3 taken together would be our growth strategy.
Okay. But subscription and renewal income will be part of the CASA line item, right? I mean, this INR 33 crores will be essentially because of the higher interest income on the float?
Yes, yes. So that's what I'm saying that if you look at it on a larger scale basis, subscription and renewal essentially is coming with CASA. The float income of that is essentially coming out of the -- on the balance sheet side, which is others.
[Operator Instructions]
The next question is from the line of Ashish from Infinity.
Congratulations for good set of numbers. Couple of questions which I had. One was in terms of the revenue growth. If I look at Y-o-Y growth just for the quarter, we have got a 14% revenue growth as compared to, let's say, the 9 month, which is 25% or the year before where we used to be 20% plus.
Why do you think that growth is reducing? Is there any specific one-offs in this quarter why the growth or...
So while Ketan will go into specifics, but 2 things which are there from what I would like to mention is that from an overall growth perspective, as a company, our strategy is more aligned towards growth with profitability. So our focus is on building up high-margin products and focuses on that rather than on our general low-margin products, including API, so to say. So that is where you would see on an overall basis, the API growth has not happened. Our percentage share of own business has gone up to 65% from 60% to 63% a few quarters back. So that is one reason.
The second reason is also one of our products, which is cash withdrawal product with regard to micro ATM and AEPS more so with regard to micro ATM than AEPS. We are not seeing that substantial growth. In fact, we have seen some degrowth happening on account of that, which could be because -- it could also be that the micro ATM product was more from a COVID impact point of view was more relevant. Now with branches and ATM and everything open up, maybe that product growth, we may not see or at least we are not seeing that right now. And also somewhere, the UPI angle has also started to come in, where some of the businesses are also being looked at from a UPI perspective.
And I think the fourth point which we have already mentioned in the past is also the fact that we are moving from transaction to ownership business. Because of which, some of our office revenue, especially on remittances, micro ATM and AEPS, which used to be seen as a separate revenue item or a line item is now getting cannibalized through our CASA.
Obviously, CASA has the highest operating margin. So we are quite happy from the fact that we are increasing our CASA numbers. But somewhere that line -- revenue of that line item is now getting merged into our CASA revenue. So those are the 3, 4 high-level things.
Ketan can probably answer some specifics if he wants.
Yes. I think, Rishi, you fairly covered all the 4 points which I was going to say. Ashish, if your question essentially means that by any means, it is an element of slowdown, the answer is essentially no. It is more about higher-margin product is what we are focusing on.
Sure. If I look at micro ATM plus AEPS and BC Banking, and you have provided that in a slide that those are the 2 income streams which are kind of seeing a Y-o-Y degrowth, but would it be fair to say that over the next 2, 3 years, those things will continue to degrow while the other pieces will continue to grow?
Okay. Let me just take it point by point or sequence basis as well.
Okay.
In terms of BC Banking, as we've said, our focus essentially is going from a B2B to a B2C, which is a higher-margin product, which is there. So in the past also, we mentioned, do we expect any kind of major growth coming out from BC banking? Our focus essentially does not lie out there.
Splitting the cash withdraw and other part of the transaction business, which is MATM and AEPS, I'll just give some numbers. Our AEPS has essentially grown by 17% if I just look at the breakup on a Y-o-Y basis.
MATM is where, as Rishi explained, there is an element of flatness or degrowth which is coming off. How does this business essentially grow from hereon? Okay. Do we expect any kind of an exuberant growth? Answer is no.
We have in the past also said that this becomes a funnel for us on the CASA acquisition. Do we really mind, as long as we can -- we continue to have that footfall and convert them into an account every 10 seconds, as Rishi said in his speech, if we can open a new account, an account of a micro ATM or an AEPS footfall every 10 seconds, we are happy even if that number does not grow.
So from a philosophy perspective, we are looking at the customer ownership and data monetization and the digital savings or the digital stack, which we are building up. All of this together along with operating leverage should lead to profitability. That's where our mind lies.
Sure. But then -- so what you are saying is that while your CASA and CMS will continue to grow significantly higher, the micro ATM and BC Banking might reduce as a percentage? Today, they are 30%. Maybe a couple of years down the line, would it be fair to assume that they will be like 17%?
We're not quantifying in that sense. But from a directional business year perspective, yes, we expect our CASA and CMS to lead to a quite higher percentage. I think, Ashish, one more point which we have to be cognizant out here is as and when we are doing customer ownership, there will be other payment services and other cross-sell also which we can do.
We mentioned about the monetization of data as well. So that play will also start coming in the years to come once we have the ownership coming.
Sure. The second one was in relation to the DMT business, which is a remittances business. And I can understand that with some of the reverse migration back into the cities, we have seen flat revenue growth. How do you see that going further? Or is it just a phase out of the API business that Rishi talked about?
You rightly said, as I also mentioned in my earlier script, that our DMT business has grown by 27% if I look at YTD kind of a number. Yes, partly on account of the rebounds of COVID. How are we looking at DMT, currently constitutes around 35% of our revenue pie. How are we looking at, I think, this is something where we are the market leaders. We are bundling this with couple of other products, and we are looking at growth.
So remittance is not only a footfall generation kind of thing for our ownership, but we are also looking at the growth and not only, Ashish, on the open banking thing but also on -- rather more on our own banking channel. That's the plan which we have for DMT.
Sure. But this quarter -- if I look at just this quarter, our growth is down to 1%. Anything [indiscernible] with me.
Yes, yes, yes. A lot of times of festive seasons and a lot of times couple of other things also play its part. But in the long run, we are working out in a manner. And I should not shy away from saying that there is a lot of competition in DMT.
We are trying to work around in a manner and the advantage which we have because of our banking license as compared to most of the other competition players on DMT, we are trying to make a strategy of growth on the DMT.
So let me just give you some facts, Ashish. This is an important question. And this alludes from our earlier conversation where I said we are converting customers who come to our point for transaction and to our own customers. So that's the ownership strategy which we are talking about.
If you look at the fact that our rupee volume has grown by 184% -- sorry, 130 -- 84% in the last 1 year, last -- 9 months, April to December, and our P2M has grown by 133% in the last 9 months. So for us, a person who comes to us for remittance, we open an account for them. We encourage them to start using our P2P service on UPI for transfer of money as such.
The general margin, which we make on our remittance transaction is about INR 8 to INR 10 per transaction. Whereas when we look at our CASA, we make a much higher margin, somewhere around 50%, 55%, 58% on our new accounts.
So our margin ratio is much higher. So we encourage customers to use UPI. And that is where you would see our UPI volume has grown substantially. So part of it is also, as I mentioned earlier, is moving from cash to our UPI business.
And these are the same set of people who come to us for remittances and cash withdrawal, who can start using UPI for P2P or P2M, which means that they don't need to withdraw a higher cash. So -- and as well as to transfer money through the remittance platform.
So it's kind of change of behavior which we are pushing. In fact, we are investing quite a bit in our digital stack, including putting our FinoPay application and pushing on the UPI transaction because UPI end of the day helps us in reducing our cost. If I look at from cash withdrawal purpose, if they go and withdraw cash on an ATM, the cost is much higher compared to if they use it for UPI, for P2M or P2P business.
So that's the broad thing, so you have to look at from an overall point of view of a customer ownership point of view how it pans out rather than individual products because, to some extent, some product revenue is also getting captured in the CASA revenue.
Okay, sir. Understood. And as you're increasing the share of your higher margin businesses...
Sorry to interrupt you Mr. Ashish, may we request you to please rejoin the queue? We have participants waiting for their turn.
Sure, sure, no problem.
The next question is from the line of Bhavana Jain from Avagrah Capital Advisors.
Yes. I just have follow-up...
Sorry to interrupt you Bhavana Jain, but your voice is not that clear.
Hello, can you hear me?
Yes, Bhavana, please continue.
I just had a follow-up question on the same CASA and CMS. As just mentioned that CASA and CMS are high-growth business, right? So just a small question on how are we planning to grow ahead with increasing this number in our revenue as such and strategy going forward?
So if you look at our numbers on CASA and remittances -- CASA and CMS, in the last 2 years, I remember from 10%, it has now grown to nearly 25% on an overall basis. If I see last year, they both put together was 16%. Now it is 25%, a substantial growth of 9% in the last 1 year.
We believe CASA -- I'll come to CASA first. We believe CASA is a customer acquisition engine which we have built up. It includes -- the income here includes the renewal income also. Renewal income right now is about 75% of the new income which comes in. In FY '23, '24, because of 1 new year which will get added to renewal, we expect that the renewal income and the new income will be kind of matching. And it could be -- one could be higher than the other also to some extent.
So we continue to build on our CASA. It's like an annuity business for us. And this will also end with the digital stack and the UPI push which we are doing. We expect higher balances, which will lead to a higher interest income. It will also lead to some kind of a cross-sell.
As we go forward, we are also looking at bringing new products from an ownership point of view. So it continues with the same ownership strategy with a very low customer acquisition cost because of the transaction pull, which we have, which customer comes on our platform any which ways. So CASA will continue to grow.
On the CMS part, if you recall, we had mentioned 2, 3 things in the last call also. Now we have about 172 clients which are active on CMS. One more thing which we have done is that we have diversified our CMS portfolio, now 55% of which is BFSI and 45% is non-BFSI.
And it includes multiple kinds of companies from NBFC, MFIs to the other 6 companies, to e-commerce, to CRAs, to all your food delivery, your delivery kind of company. So we have a well-diversified portfolio.
India, while it's quite interesting to know and it's kind of a still nobody has a clear answer but both the digital as well as the cash economy, both of them are growing. If you look at the cash in circulation is also growing, and digital is also growing. And that is exactly coming through in case of Fino.
Also our digital business is also growing. Our physical business is also growing in parallel. So we believe with higher diversification which we have been able to do on our client side and also the fact that we are adding new clients every quarter, we believe we'll have a higher potential to grow in CMS.
Obviously, the percentage growth may not be of the same double, triple because the base has become quite large, as you can see now. But we continue to believe with the kind of penetration Fino has on the ground and ability to suck in cash, we believe the CMS business will continue to grow in the years to come along with our CASA business. And the network effect will definitely play a big part in both the businesses.
So briefing it, like, can you give a small target after that? Like right now, if I could see your presentation, CASA and CMS includes totally 3% of the total revenue. So in the few -- couple of months [indiscernible] what can target this number could really go to, if any brief?
Bhavana, at this stage, Rishi just mentioned that we are bullish about it. We're not giving any specific guidance in terms of number, et cetera. But the engine is on. And I think one point which we have to be cognizant of and I mentioned it earlier as well that on a 9-month YTD basis, the renewal aspect, which Rishi mentioned and I also mentioned, has grown by 2.8x on a YTD basis.
That has a cumulative impact which will come through. We are focusing on enhancing that strategy in terms of reaching out to customers and engagement. So at current stage, we're not putting a number, but it is -- we can say that the momentum is on, and there are business plans which we will execute for these high-margin growth products.
Sure, sure. No problem. Only one more question. In the last call, you mentioned something about partnerships with various fintechs and all that. Any progress on that front in -- any idea on that, and what's going on ahead?
So that's a good question, Bhavana. So a couple of things which we're working on. We already have got 40 to 50 partnerships on the API side with our -- on the rural fintechs, which are there. On the digital fintechs, there is one partnership which is already final, and we are in the process of rolling it out. Hopefully, in the February month, we'll roll out that partnership -- February or March, we'll be able to roll out or maybe this quarter.
There are a couple of more which are lined up as such. So once we start on the first, we'll be able to then quickly roll out the couple of other fintech partnerships which are there. So probably in the next call, we'll be able to share the names as such as well.
Definitely, definitely. And any other avenue that you guys are looking for like the list [indiscernible] not mentioned yet and can be disclosed, if any.
So we are -- we obviously continue to look at options and opportunities which are there. As you can say, our focus on digital has become quite aggressive in the last 1 year, and we are seeing a lot of green shoots on that.
As I mentioned, nearly 55% of our UPI transactions which are P2P transactions that we have seen a 133% growth in the last 9 months on UPI, P2P. So you can expect some more products, especially on the digital side of the business, coming up in over the next 6 to 9 months.
The next question is from the line of Shreya Shivani from CLSA.
Congratulations on a good set of number. I have 3 questions. First is on the AEPS. While yes, there has been year-on-year growth, but if I see the AEPS throughput from 1Q to now, sequentially, we've been declining for -- this is the second quarter that we've declined.
So I just wanted to understand. The gross yields for the segment has also declined now at 30 bps roughly. So if you can talk about what's happening here? Is there any competitive -- any change in the competitive landscape? That's the first one.
Second is on the CASA revenues. While the renewal incomes have been very strong, the new subscription income was flattish quarter-on-quarter, I'm seeing that on a quarter-on-quarter basis. And that implies that your gross yield per CASA account, that has sort of declined. So have you launched any new products with lower subscription fees, et cetera, if you can make some commentary on that?
And lastly, it's on your international remittance, but if you can give an update. And also I wanted to understand that RBI has banned SBM, State Bank of Mauritius' international remittance. Some restrictions have been put on them. If you have any commentary around that or any details on that and how our product is panning out. Those are my 3 questions.
Yes, thank you, Shreya, for your questions. On the first, on the AEPS growth, see AEPS growth, we are not seeing that the competition is eating up. In fact, if you read our commentary, our IR, in our investor report also, we have mentioned that our AEPS market share has gone up from 11% to 12%. So we are not losing out on the market share per se. So that is the first part.
So that you should put to rest that there's a decrease in the market share. Market share has gone up by 1% in the last 1 year. The AEPS itself as a market maybe because of -- largely because of the UPI business, we believe, is somewhere is getting eaten up. The UPI, P2M is getting eaten up in that segment. So that is largely that piece.
AEPS also from an overall industry point of view has been more flattish or in the same range as growth as what we have mentioned. In fact, in our commentary also, we have mentioned 1 minute, yes, that the AEPS industry grew by 8% on a year-on-year basis in quarter 3 FY '23 whereas the throughput of Fino ecosystem grew by 21% year-on-year basis. And we have also increased our market share by 11% to 12%. So that's the answer on AEPS.
On CASA, actually, we had replied earlier to questions -- very similar question put up by Renish. So maybe we can take that offline. Otherwise, it will be kind of repeat.
I got logged off. So maybe I missed it. Okay, sure.
Yes, that is there. But your question on gross yield decline was something which Renish -- which is over and above what Renish had asked us. So on that piece, you can see we have a product mix which is there. So different products are at different price.
So in a particular quarter, there could be some change in different product mix, which could be there. So it is only on account of that. Otherwise, the pricing of the products have more or less remained the same.
On third part on international remittance, we are happy to say that we have launched our international remittance from -- which we launched in the last quarter on the branch portfolio. Now we have launched it on the merchant side.
One thing which we have realized is that there is a lot of compliance fees which has to be stressed when we look at international remittance because of the AML, KYC piece. So that piece we have finally been able to close, and we are now onboarding merchants on a monthly basis. How much we do every month now?
We've already onboarded 600 and 200 per month.
So 200, 600, we have onboarded till now. Another 200 we are in the -- 200 is what we onboard every month now. So once the onboarding is gathering steam, you can expect that the volume will come up as we grow. It's a very competitive, intensive business. So it will take its own sweet time to show up on our revenue numbers.
Got it. Got it, sir. And any idea on why SBM Bank was restricted?
Oh, so SBM is a different story. It was not regulated to our international remittance. That was more for LRS, liberalized remittance scheme, where you can send money abroad. So there were some -- maybe some -- I don't know the issue which is there. But that has nothing to do with our set of business.
Okay.
That is totally, completely different, unrelated thing. That is on the outside, and this is coming in.
Shreya, just to add that for us, the international remittance is essentially the inward remittance which we'll be looking at.
The next question is from the line of Umang Shah from Kotak Mutual Fund.
Yes. I had a couple of them. First, I just wanted a data point. What proportion of our CASA customers are currently renewing? I mean, what's the renewal penetration rate for us?
It's -- it varies between 60% to 65%.
Okay. All right. Sir, the other point which I wanted to probably discuss a little bit more in detail is, so Ketan mentioned that you guys don't want to put a number. But ex of interest income, I just wanted to understand that maybe from next 4 quarters' perspective, how will the top line growth look like?
And where I'm coming from is 2/3 of our business, which is BC Banking, micro ATM, remittances, on a combined basis, clearly, this segment is not growing now for the past 4, 5 quarters. A lot of trust is obviously put upon CASA and CMS, which again basis your comments, you have already mentioned that the scale is also becoming fairly reasonable for us.
So just wanted to understand that outside of this interest income piece, how should one look at the revenue growth in -- on a combined basis? Now I understand the nuance that CASA and CMS will grow faster compared to the others. But how should we look at the overall top line growth?
Umang, Ketan here. I'll again take the same stance. I do not want to put a specific kind of guidance out there, what I mentioned earlier to Ashish as well. But I do understand your question in the context of the cash withdrawal point, which Rishi has mentioned in the context of DMT and in context of CASA and CMS.
I think we just need to step back and look at our kind of a strategy, which we have said earlier as well. We -- Rishi and his points keeps on saying that he has a 3-pronged strategy, which is TAM target, transaction, acquisition and monetizing. Currently, we are on an acquisition kind of a spree, which is coming off. Okay.
While when Rishi earlier said that, yes, there is a scale which has come on CASA and CMS, I'd like to clarify -- give more so for your context is, he by no means is saying -- he was just saying that CASA and CMS, which is grown at a 3-digit number on a YTD basis, it will not be 3 digit given the case, but it does not essentially mean that the growth driver dilutes. So just to put that at rest, one of your point was there.
DMT -- and we have to also realize the point which we mentioned earlier is the TAM part or the monetization part, there will be cross-sell which has come. There are the new digital products which we are essentially also putting it across.
So from an overall perspective, in and around customer ownership, there are things which are being built up. And as we see our acquisition phase will continue, our monetization phase is yet to start. Rishi earlier mentioned about the payment services and the digital stack as well with our kind of ownership which we'll do.
And again, from an absolute perspective, we also need to put our annuity income, which we have emphasized. So all taken together, if I had to summarize your question on maybe around 66% of the transaction business, I would split it into 2 parts. One is DMT, which I have said earlier. In some form, we are trying to grow on that own channel, which will be a relatively higher margin.
CASA, CMS, I have clarified, may not be a 3-digit number or a high 2-digit number, but there is a growth engine which will continue. CASA renewal, I have already mentioned. And in addition, the new lines of our businesses, which we are essentially looking at in and around customer ownership will drive our revenue growth.
Just to reiterate it, our focus is both on growth as well as profitability. I have mentioned it earlier as well that operating leverage, which is demonstrated in the numbers is playing and will continue to play. And so bottom line and the EBITDA and PAT margin, we expect it to grow even faster than the top line.
Sorry, I don't know whether that's answered your question or not, but I've just given a perspective of what is our thought process in terms of growth and focus.
Sure. No, this is helpful, Ketan. Just on the OpEx and the EBITDA part that you spoke about, again, a fairly good and tight control on OpEx during the year-to-date figure. For last 3 quarters, pretty much in a tight band is what we are operating. So will it be fair on my part to assume that there is further scope for margin expansion from here on basis your comments?
Yes. I -- we've seen a 40% growth on a YTD basis in terms of throughput and on a Y-o-Y basis, 34% growth. And on an operating overhead, just -- operating overhead has grown by 3.1% and 2.5%. So operating leverage, which is currently in play, will continue to play its part in terms of scalability as well.
So just to reiterate what I earlier said is X percentage of growth in top line because of the operating leverage, which will continue, will lead to a higher EBITDA and a PAT margin is what we are looking at. I'd like to reiterate the point is while profitability is a focus, are we not investing into our digital and technology? We are.
So but -- that also the stack which we are attempting to build would be eventually leading to our profitability as well. So in a nutshell, yes, operating leverage, it will continue.
Great. And just one last data point. What's our outstanding deposit base? And what's the average interest rate that we pay on our star deposits?
I think we are at INR 976 crores as at December. Typically, our interest rates, we've just recently made a carded interest rate change. But typically, currently, we are having around 300 to 350 basis point margin on our investments.
You mean to say the spread that you are making is 300 to 350 basis points?
Yes.
The next question is from the line of Ashish from Infinity.
Just one question in terms of, Ketan, a data point. While we look at EBITDA, but the fact is that some of our interest costs are below the line, and that number can change significantly. So what might be helpful is to look at an EBITDA number as a percentage.
So how much is -- I see that, that has gone up. So if I look at the PBT percentage, we are running at around 8%. Where do -- as you play this strategy out, where do you think it can go up to as some of the lower-margin businesses get out?
Ashish, I do hear you out. And I think it's a fair question. I know you basically split the business into what is the core business and the -- sometimes the opportunity, which we essentially get on our balance sheet play in terms of borrowings and so on and so forth.
Sure.
At current stage, whilst I do recognize what you're saying is off, okay. We are -- see, I mentioned it in the last call as well. Because we have a regulatory license, because we have opportunity which is coming in terms of using the required reverse repo line as well and where we can get a bit of a state coming across, intentionally, we have our borrowings coming through.
If you look at borrowing, some part of our borrowings is compensated by the investment which we essentially have out here. Do in near future we look at the split? Or are we looking at a major growth? To answer your point is a treasury play or the borrowing of the balance sheet play is incidental.
Our core business continues to be the transaction business which we are looking at, the ownership, which we mentioned and the monetization. So all our strategies are essentially built towards the core business. And as and when we incidentally get these opportunities because of our license, we will continue, but we are not attempting to go big in terms of a noncore business or in terms of the balance sheet play as of now.
No, absolutely, I agree. All I'm looking for, Ketan, is maybe a data point from you that if you were to, let's say, is -- take the interest expense above the EBITDA line because it's more an operating expense from some perspective. What will -- how will our margin movement look like? And where do we think that we can take it to, let's say, 2, 3 years' time?
Ashish, we will incorporate that into our submissions from time to come.
Sure. And maybe we can take this offline.
Certainly.
[Operator Instructions]
The next question is from the line of [ Kamal Khatri ] from [ EMSL ].
Congratulations, first of all, for the highest profit quarter. I have 2 sets of questions. First is in the last update, you have said you have INR 700 crores of borrowing, which is helping you building the interest arbitrage. I just want to take an update how this is panning in this current quarter. And basically, how much borrowing growth you have done in this quarter, and what is the spread on that?
Second question is regarding the balances. You somewhere have mentioned that your total savings accounts are 67 lakhs and the average balance is around INR 1,100. So that total of around INR 750 crores. And in the overall balances, that is around 976. So is there something else getting added there? These are the 2 sets of questions.
Yes. Thank you. I'll take your first question first. In terms of the borrowing, I think this is connected to what Ashish also asked that is, is our balance sheet play something which we are essentially doing? The answer to that is no.
If I give you some sort of a data point as of the previous quarter, our total borrowings was INR 733 crores, which is reduced by INR 49 crores to INR 694 crores in terms of -- as at December. The spread, which we overall look at and as I mentioned, the overall spread, which we are looking at in terms of the borrowing and the investment number, if you look at borrowing along with investment, our total borrowing is INR 694 crores. Our investment is INR 1,310 crores as well.
What is the spread which we are getting on the borrowings, that is a bit -- over the last 3 months, it is a bit differential. We have been getting anywhere between 70 basis points to 100 basis points spread, which we have come from.
On your second point, sorry, Kamal, you may have to just reiterate the question, and I will answer it.
I'll answer it. So the second question, your question was in terms of INR 900-odd crores of deposits versus 67 lakhs x [ 110 ] comes to INR 700 crores. So the balance is the merchant deposits, which we have. So total adds up to about INR 970-odd crores number.
INR 976 crores.
INR 976 crores. So you are right, it includes both the CASA as well as merchant deposits.
[Operator Instructions]
The next question is from the line of [ Krishna Hegde ], an individual investor.
I was looking at the capital levels of the bank versus what is regulatory required. And obviously, it seems that you're overcapitalized. Are there any plans to optimize the capital structure, given that you're currently cash flow positive and profitable? That's my first question.
And the second question is if you could update on the partnership with Suryoday Bank for cross-sell of FD. There was an announcement about that, I think, a few months ago, but I didn't see anything on -- whether there's been progress on that selling strategy. Love to get more color on that piece.
Krishna, I'll take the first question of -- and you're absolutely right. Our equity and reserve is INR 529 crores against this thing. Capital adequacy is largely not too relevant for us because we're not a lending bank [ since and now ].
See, we have to look at it in the context. A year back, we have raised primary capital of INR 300 crores. And we have at that point of time also said that we are looking at making a digital and a technology start along with profitability as well. So optimization of capital will be coming over a period of time. And as we speak, that is already happening as well.
So we are -- we continue to invest in terms of digital. As Rishi mentioned, rural India is getting digitized fast. We have full network along with the network expansion on our merchant point. We are looking at technology and digital stack coming out as well, and that's where it will be put to use on a phased basis. And this is in line with what we had expected at the time of IPO when we raised the primary capital. On the second point...
The partnership with Suryoday, we are currently going through a CUG, which is closed user group testing. We plan to go live by middle of February this month.
As this was the last question, I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for being on the call today. As you can see, the focus of Fino has been on building up the business in a profitable manner. That has resulted in our growth in our EBITDA to 12.4%, our PAT at 6.1%, our net revenue percentage growing to 32.1%.
We continue to focus ourselves on our customer acquisition, our merchant acquisition as well as bringing the digital stack to our customers. We also continue to build on our product stack. And as one of the questions was there, you should see some new products coming into our business in the next 3 to 6 months or so.
So we are quite positive while there are some concerns, which were raised around micro ATM and AEPS, let me assure you in terms of part of it is also because of the CASA, which is getting added and also, to some extent, because of the UPI push, which is there in the market. But overall basis, we continue to build the business the right way and pushing customers who come to our point for transactions to ownership and then over a period to monetize them.
And we are also grateful to all of you for joining us on this call today. I know it's a busy season for calls. And with that, I would like to end the call, and wish you all the best. Thank you.
Thank you, everyone.
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.