Fino Payments Bank, known for its unique asset-light and profitable digital banking model, is gearing up for a major transformation. With a vision to evolve into a Small Finance Bank (SFB) offering both payment and lending services, the bank is poised for long-term sustainable growth, according to a new research report initiating coverage on the stock.
Analysts have issued a ‘Buy’ rating with a target price of ₹300, representing a 34% upside from the current market price of ₹224. The report highlights Fino’s strong position at the intersection of digital payments and rural-urban (RURBAN) financial inclusion.
From transactions to ownership-led banking
Fino has built its presence on the back of transaction-driven services like remittances, AEPS, and micro-ATM operations, primarily catering to underserved customers via a merchant-led model. However, the bank is now shifting focus towards ownership-led banking, particularly through current and savings accounts (CASA). This move is expected to generate stable annuity income while opening up cross-selling opportunities. Currently, CASA revenues contribute about 24% to Fino’s overall revenue, with annuity income comprising around 10%. Notably, the bank enjoys a high contribution margin of 50%, underpinning its profitability.
Leveraging digital payments for future growth
The increasing adoption of digital payment platforms has challenged traditional revenue streams like remittances and AEPS. In response, Fino has strengthened its digital payments stack, particularly in the B2B UPI space. Its digital payment services contributed 6% to revenue in FY24 and 20% in the first nine months of FY25, with projections indicating a rise to 31% by FY27. The bank also plans to expand into direct-to-consumer UPI services and bolster its prepaid payment instruments (PPI) offering—initiatives expected to further enhance margins.
A differentiated SFB model in the making
Fino has applied for an SFB license, which would lift key restrictions—such as deposit caps—and unlock new revenue streams, including secured lending and fee-based services like credit cards. Unlike conventional SFBs that struggle with CASA mobilisation, Fino is likely to enjoy a head start due to its existing strong payment infrastructure and cost advantage in lending.
Attractive valuation amid sectoral headwinds
While traditional SFBs face asset quality concerns and many fintech players report persistent losses, analysts believe Fino represents a rare combination of growth and profitability. The bank is expected to deliver return on equity (RoE) of around 17% by FY28 as an SFB, compared to 13-14% under its current model.
At 1.9x FY27E price-to-book and 14.8x price-to-earnings, Fino is considered attractively valued for its long-term digital banking play.
