Fino Payments Bank Navigates SFB Transition Amidst Profit Decline

Fino Payments Bank has encountered significant headwinds, with its net profit for FY26 plummeting 43% year-on-year to ₹52.5 Cr. The final quarter of FY26 saw an even sharper decline, with net profit falling 70% to ₹7.1 Cr compared to ₹24 Cr in the same period last year. This downturn follows a period of scrutiny after the arrest of its CEO, Rishi Gupta, in February.

Several factors have contributed to this financial strain. Firstly, a November 2024 RBI circular effectively curtailed a substantial portion of bank-led remittance transactions, impacting Fino Payments Bank more significantly than many peers. Secondly, distress within the NBFC and microfinance sectors has affected Fino’s cash management services (CMS) and business correspondent banking segments, which jointly accounted for 15% of its FY25 revenue. These segments rely heavily on NBFC and MFI activity, which saw a sharp pullback, reducing their share of CMS throughput. Consequently, CMS revenue dropped 26% year-on-year, contributing to an overall 14% fall in Fino’s total revenue for FY26.

A third reason for the revenue decline is Fino’s strategic withdrawal from parts of its digital payments business. This move was precipitated by the ban on real-money gaming and further complicated by the investigation leading to Gupta’s arrest. Fino, a Mumbai-based payments bank established by the RBI to enhance financial inclusion, operates through a vast network of over 20 Lakh merchants acting as banking touchpoints, particularly in semi-urban and rural areas. The bank has amassed 1.75 Cr CASA customers and aims to serve as the infrastructure layer for digital payments in India’s hinterland.

The bank’s business model, which previously worked well and led to its listing on stock exchanges and in-principle approval to convert into a Small Finance Bank (SFB), has faced unprecedented challenges. Fino collaborates with programme managers to deliver digital payment services. Following the government’s ban on real-money gaming in August 2025, Fino claims to have blocked all merchants in this category. However, the Directorate General of GST Intelligence (DGGI) investigated alleged GST evasion by its programme managers related to real-money gaming, leading to Gupta’s arrest. While Gupta is currently out on bail, his reappointment as CEO is subject to a reassessment of his ‘fit and proper’ status by the company’s board and the RBI.

In the aftermath of the CEO’s arrest, Fino has suspended its UPI PQM business for merchant partners, citing a need for comprehensive review and a sustainable business model. This segment’s revenue had already shrunk due to the real-money gaming ban and a broader cleanup of programme manager relationships. In Q4 FY26, digital payment services revenue fell 70% year-on-year, with active merchants in this segment decreasing to 229 from 347 in the previous quarter. The bank anticipates further revenue decline in this segment and has not provided a timeline for its resumption, indicating a new digital plan will be shared later this quarter.

The pause in the digital payments segment, crucial for Fino’s data and transaction infrastructure planned for its SFB transition, may set back preparatory groundwork for credit underwriting. Furthermore, as Fino transitions to an SFB, it must cease its corporate business correspondent vertical, which currently contributes significantly to its revenue by acting as an agent for other banks. Fino’s management, however, believes that income from lending activities post-SFB conversion will offset these losses.

Despite these challenges, Fino has reported robust growth in its deposit franchise. In March 2026, the bank claims to have opened 3.2 Lakh new CASA accounts, a three-year high, with total deposits reaching a record ₹2,957 Cr. Renewal income also hit a quarterly high in Q4 FY26, with full-year renewal income growing 25% year-on-year. The management views these figures as evidence of a sound business model and customer loyalty, even amidst significant duress.

The bank’s lending vision for its SFB operations focuses on secured loans, including housing, gold, and loan against property, as well as MSME lending, with secured loans projected to constitute 90% of its loan book. Fino aims for an asset-light model, sourcing approximately two-thirds of deposits and loans through its merchant network, targeting a 20% return on equity by FY30. A key advantage is its low cost of funds, estimated below 2%, due to a large base of low-cost CASA accounts, providing a potential 300-basis-point edge over typical SFBs in pricing loans. The referral business, where Fino earns fees by referring borrowers to other lenders, serves as a proof of concept for this strategy.

The immediate future for Fino Payments Bank hinges on the smoothness of its SFB transition and its ability to navigate current challenges. A critical question remains whether the CEO’s arrest might prompt the RBI to re-evaluate the SFB license. The next year is expected to provide clarity on these fronts.