OVERVIEW
I am pleased to address shareholders with more than a performance review of the
financial year. I am delighted to capture a slice of a transforming Bharat, which
influenced our performance during the last financial year.
If I were asked to identify the big difference between the India of a decade ago and
now, the operative word would be ‘Confidence'.
There is a complete difference in the body language of the world's largest population -
whether one sees this in the response of the country as a whole or in the individual
actions of its people.
Modern India and contemporary Indians are far more confident than the previous
generations. This reality represents the backdrop of my communication in this Annual
Report.
My subject is confidence and how a confident Fino is not only capitalising on the
country but also helping enhance it, creating a virtuous circularity in intent and
outcomes.
GOING DEEPER
The one question that I have been asked is, ‘Why is India more confident than
ever?'
The principal reason for this is India's position within the global landscape. These
are some reasons that one can ascribe to India's progressively growing confidence.
One, in the last two years, two realities have emerged: India is now the world's
most populous country. India has moved from the sixth largest economy to the fifth,
growing faster than any major economy.
Two, during the last financial year, India's GDP grew 8.2%; this follows the fact
that the country reported a 100 bps increase in GDP growth to an estimated 7.2% in FY
2022-23. Compare this with the fact that the largest global economy (USA) grew 2.5% in
2023 and the world's second largest economy (China) grew 5.2%.
Three, the needle of attention is shifting towards India not only on account of its
standalone performance but how India's performance influences the global growth average.
During the year under review, 16% of the world's economic growth was accounted for by
India. This indicates that India is catalysing the economic direction of the world.
(Source: World Economic Forum)
Four, the macro-economic growth of India is cascading into increased personal
incomes, improved social realities, increasing the role of its young in economic spending
and enhancing their familiarity with global progress and developments.
Five, the smartphone revolution sweeping India is translating into disproportionate
upsides, extending from the functional to the economic and from the casual to lifestyles;
this is creating a platform of transformation opportunities accelerating economic progress
and prosperity.
TRANSFORMATION IN OUR SPACE
This transformation is translating into an enhanced freshness within the country's
banking sector.
When we entered the business more than a decade-and-a-half- ago, the principal
objective among companies like ours was to bring the unbanked and under-banked masses into
the formal banking fold. With the national momentum (inspired by the government's PMJDY
and Direct Benefits Transfer - DBT) being favourable, this stage has been creditably
achieved.
The number of Indians covered by the country's banking network increased from 103.2
Million to over 500 Million during the last decade. In percentage terms, 58.7% Indians had
a bank account in 2011; this figure now stands at around 90%, possibly the fastest
financial inclusion anywhere in the world.
At Fino, we do not see the widening banking coverage as just a numerical increase; we
interpret this as the deepening of India's banking (and even economic) infrastructure
catalysing rural prosperity. The inclusion of India's vast rural economy - the largest
such population cluster in the world - has graduated to the next level following the
benefits of universal banking access made possible by technology-led differentiated banks.
Going ahead, this wider and deeper inclusion will not only generate positive ramifications
for the Indian economy through enhanced incomes and money velocity, but also for the
world.
The widening of banking reach in the remote rural areas of the country i.e. Bharat
would have been a signal achievement - the achievement of a decisive reality within the
space of a few years. However, during the last decade, something else transpired:
initially, a sizable number of these new bank accounts were used to withdraw the cash
transferred by the government as a part of its seamless DBT scheme. This is how these bank
accounts would have remained - passive recipients - while most rural Indians went around
their work using cash and informal monetary channels.
Two things in the last few years proved seminal in the banking history of consumer
India.
One, India launched a backbone for online payments that made it easy to transfer
cash from one smartphone to another, a boon in rural India, where carrying cash invited
risk.
Two, a number of service providers made it simple to transact online. The result is
that it is now not only easy to pay online into the Bank; it is also simple to pay others
from that account (or subaccounts). Suddenly the consumer has begun to recognise that not
only he or she would not need to carry cash from one point to another but that it would be
simpler to pay without stepping out of one's home. The two terms that I picked up
consistently in my engagements with consumers was ‘Koi fikar hi nahi' and ‘Tension
khatam'.
From the groundswell of this convenience emerged the second phase of India's rural
banking experience. Individuals who had largely forgotten their inert bank accounts now
began to turn to it for active transactions; the accounts that were merely used as cash
repositories or places of cash safekeeping were now used for active transactions. At Fino,
we see this as a seminal development, which indicates that organized banking is no longer
perceived as aspirational or complex by the masses; it is being seen as a facilitator and
convenience-enhancer.
This brings me back to the word that I began this overview with - ‘confidence'.
If India's mass savers are using their bank accounts more than just as repositories, it
indicates that the consumer is transforming: more willing to embrace changes sweeping the
world, more comfortable with digital banking, and more willing to graduate from the
physical to the virtual.
At Fino, we are excited not just by the fact that this transformation is transpiring;
we are excited by its speed; we are excited by the possibilities; we are excited by the
fact that even as a part of India's population sweep is still moving towards financial
empowerment and access to universal banking, a larger part is already graduating towards
increased engagement. The priority to widen our financial circle has now been replaced by
an even bigger ask: the Bank needs to create more reasons for customers to transact
through Fino; the Bank needs to become an everyday turn-to partner that enhances
transaction convenience; the Bank needs to graduate to become the customer's primary bank
account; the Bank needs more consumer- engagement opportunities to digitise cash. The
bottomline: Fino needs to accelerate from the conventional and inclusive to the
strategic and innovative.
These are the various reasons for our enthusiasm.
While our merchant network (close to 18 Lakh in FY 2023-24) offered assisted services
to technology-challenged customers, our digital platforms (mobile banking app FinoPay and
the newly launched Net Banking service) addressed tech-engaged customers, including those
using Android and iOS smartphones.
We are witnessing a growing UPI transaction volume on the Fino platform, which
accounted for a sizable 1.27% of the total UPI ecosystem transaction volume in the last
quarter of FY 2023-24.
Around 40% of our 1.1 Crore customer base was active on digital platforms, accounting
for 37% of the overall transaction throughput of Rs.3.58 Lakh Crore in FY 2023-24.
Even as the digital format contributed 6% to our FY 2023-24 revenue, this percentage is
expected to rise significantly, riding the surge in UPI transactions.
In addition to strengthening the digital ecosystem to address growing transactions, the
Bank deepened investments in the technology stack, including cyber security, core banking
system and widening services through fintech partnerships. The Bank is expected to go live
with Finacle's core banking system by end of the FY 2024-25.
The Bank's digital investments are aimed at enhancing systemic future-readiness as well
as exploring opportunities arising out of a potential license enhancement i.e. conversion
to a Small Finance Bank.
Banking being a business of trust, adhering to regulatory compliances, better risk
management, controls and audit as well as ensuring business continuity are hallmarks of a
strong financial services institution. Our efforts are towards building Fino into one such
institution guided by the principles of good Corporate Governance.
CHANGING ORBITS
If there is a big message behind this Annual Report, it is this: at Fino, the changing
of orbits has begun to transpire. And nowhere has this circle-changing been more evident
than in the numbers reported by the Bank during the last financial year. I will extend
beyond the topline and bottomline even as they indicate that our scale has grown (the Bank
reported a 20.2% increase in total revenues and a 32.4% increase in profit after tax in FY
2023-24). I will turn to a range of alternative indicators that validate the health of our
business.
One, we upgraded a larger number of customers from a normal savings account to a
digital savings account. Around 40% of our customers turned to UPI transactions during the
last financial year; they accounted for 75% of our active customers. This indicated a
predominant pass-through of accounts to the active, transaction-driven and habit-forming.
Two, the volume of customers who trust Fino increased sharply - from 78 Lakh
customers in FY 2022-23 to around 1.1 Crore customers in FY 2023-24, an addition of around
32 Lakh; renewal income increased from Rs.73.1 Crore in FY 2022-23 to H 127.8 Crore in FY
2023-24, a growth of 75% in annuity revenues.
Three, the CMS part of our business grew during the last financial year - from
negligible to around 10% of our total revenues in FY 2023-24. This indicates that our
services are being considered as dependable across a completely different transaction
audience (B2B) that could grow attractively.
Four, some initiatives that remained largely under the radar hold out attractive
prospects - the Bank made an application for conversion into a Small Finance Bank to
the Reserve Bank of India; the consolidation and restructuring of the holding company; the
activation of a technology upgrade to broadbase the Bank's operational foundation.
SOCIAL IMPACT
At Fino, we engaged in a commercial business with a social outcome.
We improved banking access by creating employment opportunities for enterprising locals
in the capacity of merchants providing banking services.
By deepening reach across the underbanked and un-banked locations using technology
solutions, we helped create (with peers) a new banking experience that enhanced
convenience, empowerment and engagement. This enhanced confidence across our customers and
their dependents, seeding the foundation of a new Bharat.
The result is that banks like Fino are helping thousands being banked for the
first-time, making the leap from paperintensive transactions to paper-less engagements and
from cumbersome onboarding to swifter Aadhaar-based account opening.
Besides, Fino's new generation of banking merchants and partners offer assisted digital
services that empowers them to handhold customers through digital banking adoption.
By bringing digital banking closer to the masses, Fino is building confidence among
customers who once felt that such a service and engagement was outside their status and
reach. Access to banking and regular engagement is helping improve confidence and the life
quality of millions of Bharat customers, furthering financial inclusion and social
empowerment.
By helping Bharat customers enhance their time efficiency, we are helping widen
income-enhancing opportunities and graduating them from drudgery to productivity.
I am pleased to communicate that Fino is also helping address longstanding gender
inequity and helping redress (in some way) a social imbalance. Around 11% of Fino's own
merchant network as well as 30% of its total CASA customer base comprised women.
Interestingly, a significant part of its digitally active customers were women at the
close of FY 2023-24.
Diversity and gender equality at Fino extend beyond customers and merchants. The Bank's
Boardroom demonstrates a diverse representation, with 37.5%
Board members being women leaders possessing a rich and varied banking experience.
FORWARD DIRECTION
‘Where do we go from here?' is a recurring theme among analysts and our investors.
Before I start my response want to mention that the opportunity in our space is
colossal.
My answer is that directionally we will do as well as the country permits; within that
corridor, we will seek to be among the best.
From a directional perspective, the pieces have come together to create one of the most
compelling opportunities within our sector. The last eight years have seen a structural
shift starting with demonetization; the Indian economy embarked on a journey to graduate
from cash to digital. This direction shift was catalysed by reforms related to tax filings
and GST introduction. This initiated a shift in the country's economy from the shadow to
the organised, creating a wider platform for the country's banking sector. There was a
corresponding increase in compliances that enhanced sectorial credibility; the creation of
bank accounts through JAM (JanDhan, Aadhaar, Mobile) trinity helped implement DBT that
enhanced the inclusion of the under-addressed and under-served; the launch of a 25-year
national vision (Amrit Kaal) is liberating the country from short-term firefighting; a
robust consumption economy has emerged in Tier 3 and 4 clusters, underlining Bharat's
coming of age; the Indian economy is now growing at around 8% per quarter.
Concurrently, our market is widening from rural beneficiaries of DBT schemes to
salaried employees, self-employed, small business owners, students and a large segment of
digitally savvy customers seeking a second bank account for their everyday spends and
payments.
This provides an optimistic economic direction. Added to this, the country's banking
sector is attractively placed at an unprecedented convergence of its digital
infrastructure - JAM and various initiatives of National Payments Corporation of India,
especially UPI - that could empower a generation of the unbanked to graduate to payments
banks bypassing the conventional outlook of commercial banks. Time paucity will encourage
rural Indians to seek the digital banking option from proximate service providers.
Improvements in life quality and aspirations drive prospects for the Indian consumer and
an opportunity for Fino Bank to climb the value chain.
It took around 30 years for India to globalize in terms of mindsets, aspirations and
standards; in the next 30 years India is likely to localise and bring into the mainstream
the power and heft of the world's largest rural cum semi-urban cluster. It is interesting
to note that 1.27% of India's bank-issuing UPI business was routed through our platform;
besides, bank accounts with us comprised 1% of Bharat's population.
As India grows larger, we will be able to graduate customers from transaction to
ownership to credit to a widening presence across customer's needs.
We provide a world-class service; a new account can be opened at a Fino merchant point
in only a few minutes, while on the mobile app FinoPay the digital account gets opened
instantly. We are positioned as the National Local Bank of India. Fino's business model
expects to potentially empower around 65% of India through enhanced transaction
convenience and a platform that improves financial prosperity.
Our customer base of over 1.1 Crore is larger than the population of a number of
countries. The number of digitally active customers increased from 27.7 Lakh at the close
of FY 202223 to 39.2 Lakh (‘active') by the end of FY 2023-24, indicating the
habitforming nature of our engagement. The average balance in our bank accounts increased
from Rs.1,176 to Rs.1,287, strengthening the overall float within our system; the average
deposit balance increased from Rs.905 Crore to Rs.1,352 Crore. The transactions during the
year under review increased from 120.7 Crore to 211 Crore, providing the Bank with a wider
relationship room in which to emerge as the customer's friend and guide.
LOOKING AHEAD
Fino will seek to deepen its competitiveness through business strengthening
initiatives.
The Bank will sustain its validated Transaction-Acquisition-Monetization (TAM)
approach. The Bank will seek to graduate transactions towards accounts creation and
engagement leading to enhanced revenue visibility; it will seek to widen its CMS clientele
base, increase mandates and explore UPI opportunities in the B2B space.
By building on the CASA customer base through a widening merchant network and universal
access to its FinoPay mobile banking app, the Bank intends to enhance savings accounts.
Further, it aims to improve on the nearly 300,000 digital savings accounts opened till
March 31, 2024 and around 19 fintech partners integrated with its digital payment
ecosystem.
The Bank will sustain the ‘ownership' momentum, increasing its deposit base
beyond Rs.1,714 Crore.
In FY 2023-24, Fino Bank opened a new bank account every 10 seconds; this was
corresponded by more than 1% new accounts moving from ‘off us' to ‘on
us', leveraging nearly 3 Crore monthly footfalls at Fino merchant points. To deepen
customer engagement and stickiness, the Bank is expanding its product bouquet by offering
referral loans through partnerships that validate the creditworthiness of customers and
their needs.
By continuing the momentum and exploring new initiatives, we are optimistic that we
will accelerate topline growth in percentage terms over FY 2023-24, enhance the quality of
our business and deliver superior sustainable value for all stakeholders.
We are fortunate to be at the centre of possibly the most exciting digital
micro-banking opportunity; we have built a robust foundation that is only likely to get
stronger; we expect to grow responsibly around complete compliances; we expect to grow
sustainably in the face of the largest digital financial inclusion opportunity in the
world and continue generating a positive change in the lives of the people we touch.
That is all I have to say with a conclusion that Bharat will grow and Fino will grow!
Rishi Gupta
Managing Director & Chief Executive Officer.