FINO Payments Bank Ltd (FINOPB) Q2 FY23 Earnings Concall Transcript

FINO Payments Bank Ltd (NSE:FINOPB) Q2 2023 Earnings Concall dated Nov. 01, 2022

Corporate Participants:

Rishi Gupta — Managing Director and Chief Executive Officer

Ketan Merchant — Chief Financial Officer

Analysts:

Rajat Gupta — Go India Advisors — Analyst

Shreya Shivani — CLSA — Analyst

Ashish Kumar — Infinity Alternatives — Analyst

Sri Karthik Velamakanni — Investec — Analyst

Umang Shah — Kotak Mahindra AMC — Analyst

Chandrasekhar Sridhar — Fidelity International — Analyst

Kamal Khatri — ASML Holdings — Analyst

Rahul — — Analyst

Visvanth Bopanna — — Analyst

Prasad Kulkarni — — Analyst

Sheryl Samuel — — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day, and welcome to the Fino Payments Bank Limited Q2 FY ’23 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.

Rajat Gupta — Go India Advisors — Analyst

Yeah. Thank you, Faizan. Good afternoon, everyone, and welcome to Fino Payments Bank Limited earnings call to discuss the Q2 FY’23 results. We have on the call with us today Mr. Rishi Gupta, Chief Executive Officer; Mr. Ketan Merchant, Chief Financial Officer; and Mr. Anup 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 risks 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 will open the floor for Q&A. Thank you and, over to you sir.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you, Rajat. Good afternoon, ladies and gentlemen, and thank you for joining us today for our earnings call. This quarter makes us the 21st quarter old in our banking journey and I’m am amazed to see the progress we have made over these past few years. Our vision was to make financial services to the last mild through technology-enabled solutions. As a bank today, the vesiomn remains the same with focus on growth and profitability.

I would like to express that passing quarter our confidence increases that we are on the right path and the right direction. The way we have grown in the last few years, especially during the last few quarters of macro issues has given us more confidence that we’ll be able to navigate through any uncertain environment.

Over the years. we have created relevant products to service our customers, our products like domestic money transfer, microATM, Aadhaar-enabled Payment Systems makes banking easily accessible to the lowest rate of population and offers them differentiated services. Basically, we are a bank for the common man. We are giving impetus on scaling our CASA andCMS vertical, which is also evident from the strong growth we have seen this business segment in the last few quarters. We also believe that through cross-selling, this products will be able to boost our profitability. Given our performance during the first half of ’23, I’m confident of a strong H2. While Ketan will discuss the quarterly numbers in detail later, I would like to take this opportunity to discuss in bried a few highlights for the quarter.

F I move very quickly to Slide 4 and 5 on the investor deck, we continue to deliver very strong revenue growth. In quarter two FY’23, our revenue grew by 25% over last year and we are confident of growing at 25% over the next few years as well. Additionally, this was one of our best quarters in terms of profitibality as our EBITDA came in at INR30.5 crores, which grew 71% on year-on year basis and our PAT came at INR13.8 crores, which grew at around 75% on a Y-on-Y basis. Our net revenue margin which is a very important parameter for us, our net revenue margin increased from 30.3% to 30.9% in this quarter. Correspondingly, our net profit margin improved from 3.5% to 4.6%, not only on better revenue margin, but also on account of better cost controls. We continue to grow our distribution network, that’s the foundation which we are building. Total merchant network at 12.2 lakh, ending quarter two FY’23 was sequentially at 7% higher. Our digital footprint continues to expand, which grew at 28.208% on a year-on-year basis in quarter two FY’23.

Coming to our key focus areas of CASA and CMS. We opened 7.6 lakh accounts in quarter two FY’23. This is by far our highest numbers we have achieved in the history of Fino. And this was against 6.2 lakh which we achieved in quarter one FY’23, taking our total accounts opened to nearly 60 lakh, setting the base for a strong potential in cross-sell and upsell.

Our renewal income, which is the annuity income, also aas a substantial growth. It went up 153% year-on-year basis, leading to an exponential growth in our annuity business. While digital is catching up in rural and we are pushing that as well. Cash is still the preferred mode of payment. Our CMS, the payment services which we do on behalf of corporates, of which we have roughly 161 corporates as of now. Our CMS throughput continues to see strong growth momentum and we have already achieved 82% of our FY’22 throughput.

If I move on to Slide 6 and 7, you can see the growth we have seen over the last couple of years, including half yearly and quarterly performance and our operational efficiency has led to continuous decline in cost-to-income ratio. Additionally, going forward, we are confident that we’ll be able to further improve our cost-to-income ratio.

Slide number 8 if I look at, our product mix is evolving and moving towards high growth and high-margin products like CASA and CMS, which shows that contribution on this across our digital impetus, CASA and CMS now constitutes 26% of our revenue ending quarter two FY ’23 versus 16% in last year in quarter two. That’s a substantial 10% growth — 10% growth on the overall revenue on CASA and CMS, which is in line with our guidance which we have been sharing in the past.

If we move on to Slide number 9, again a very important slide. Our subscription revenue share has gone up to 30% from 25% on quarter-on-quarter basis, suggesting sustainable annuity income. Our focus on driving our business which delivers relatively higher margin is visible from the fact that our own business now constitutes 64% of the revenue compared to 62% in-quarter one FY’23.

We maintain a strong growth outlook and our aim to achieve 2 million distribution points, 20 million CASA customers double the wallet share on active customers to INR1,000 per customer, and increase digital footprint over the next three, four years. That is the that is the goals, objectives on which we are working on. Business momentum is good. Operating leverage will come in play as you can see in this quarter as well, and monetization of transaction business into customer ownership will lay the foundation for cross-sell in the years to come.

Investing in our Fino 2.0 avatar, we are targeting to reach out to our customers who are really — who are rapidly adopting digital means of communication, entertainment and payments. We are confident of growing at over 25% over the next few years given that we are continuously increasing and widening our distribution network and adding new customers and products. The journey ahead looks exciting as we aim to continue the momentum and explore growth opportunities. Overall, I can assure you that everything we do at Fino, our endeavor is to create a sustainable and creditable back.

With this, I would like to handover to Ketan for his comments on our financial performance. Thank you.

Ketan Merchant — Chief Financial Officer

Thank you, Rishi. Good afternoon, ladies and gentlemen. As Rishi mentioned, this is a very strong performance and the strong quarter for the company as a whole. Our financial performance was driven by strong operational performance and is a result of investments which we’ve done over past five years in the business model. Again, as Rishi mentioned, this quarter two we have completed almost 21 quarters of operations. However, point to recon out here is with 11 of those quarters have shown consistent profitability since the time we had broken even in quarter four FY’20. The unique thing about this journey has been the way we have evolved our customer relationships and our strong focus on customer ownership. You will see our focus on these aspects when I dwell into each of the segments.

Starting with CASA. Rishi has mentioned about our CASA journey as well, and I draw your attention on Slide 24 of our presentation. Our customer acquisition rate is massive on — is on massive rights. This not only generates a subscription income, but also a strong renewal income which is like an annuity income. During H1, we opened 13.8 lakh accounts, a 66% increase on a Y-o-Y basis. Out of this, 7.6 lakhs accounts were opened in Q2, which is an increase of 1.5 times as compared to earlier quarter. Now, it’s not only about opening accounts and it is also about diversification. I’ll just give you some data in terms of the states where subscription accounts have been opened for this quarter.

MP constituted 18% of the new subscription account followed by Uttar Pradesh which was 16%, Bihar 15%, Maharashtra 7%, and Gujarat 6%. This also dovetails with our philosophy that we have further penetration to be done. Some of these models have worked right in our our core areas and we are attempting to replicate in East and South as well. This is a key focus for the company because this also becomes the baseline for Fino 2.0, which dovetails — which dovetail from the strong CASA base of Fino 1.0. Over here I would like to mention that 34% of these accounts are active on digital payments as at 30th September.

Another key point which needs to be discussed is the growth of subscription revenue and overall debit card spend, which basically is a good indicator of business model predictability and shows how our presence in the digital ecosystem is unique. On a Y-o-Y basis, CASA grew by 97% in quarter two FY’23. Again, in terms of the CASA revenue, which are the states contributing it in the descending order; MP — Madhya Pradesh constitutes 20%, Bihar is 18%, Uttar Pradesh is 15%, followed by Maharashtra 8%, and Gujarat 6%.

Another important data point from a customer loyalty angle is average debit card spend. On a Y-o-Y basis, in quarter two overall debit card spend grew by 106%, while spends per transaction grew by 12% on a Y-o-Y basis. Before I move to other segments, I would like to briefly discuss the digital investments of the Fino 2.0, which is a natural extension of Fino 1.0 and which we’ve explained in the earlier call is well, and this investment has now started showing initial results. The digital throughput is now 17% of total throughput and stands over 10,000 crores. The increase on a Y-o-Y basis is almost 3 times and this is extremely encouraging because this becomes the base for future cross-sell, which in turn will generate more fee income for us.

The next next growth driver for us is CMS business, and here I would like to draw your attention on Slide number 26. CMS is a B2B business and we enjoy a strong leadership position out here. On a Y-o-Y basis, the throughput in quarter two is doubled to over INR10,000 crores. We have diversified base of 161 partners and this comprises not only of NBFCs, but also e-com players, cab aggregators and diversification was our focus out there. The diversification of partner bas was a key focus as I mentioned and is showing results in terms of the growth of CMS. While the gross margins on a Y-o-Y basis are little lower than what we saw last year, this has been our conscious strategy. The margin out here is in excess of 40%. Our strategy on CMS is to increase volume and maintain a healthy margin in the range of 40%.

Coming to the other transaction income or the transaction aspects of our business, which — whether it’s BMT or micro-ATM and AEPS, which are essentially the hook for our subscription business or for our other growing products. On the on the remittance side, we were the first movers and it is also the oldest Fino product. We continue to enjoy leadership position here. It’s a mature segment, but still important as it’s a hook product which I just mentioned it and enables entry into the Fino ecosystem. It is up to us and our field staff and our merchants how do they capitalize the convergence or the footfall which comes on account of remittance or micro-ATM or AEPS. We registered a 28% growth in Q2. We saw a margin compression because the share of the open banking channels had relatively increased on a Y-o-Y basis. We mentioned earlier as well, we are attempting to manage or have a fine balance between open banking and our own channel in the ratio which we discussed earlier.

I’ll now briefly cover AEPS, which is — which has shown strong growth on all parameters. The point to recon ot here is, the industry overall grew by 13%. The throughput on Fino ecosystem increased by 53% in quarter two. As a result, we’ve been able to significantly grow our market share from 13% to 9%. Point to recon again out here is, this has been a blend of own as well as the open banking channel.

Coming to micro-ATM, it continues to be a challenging segment. We are maintaining our dominant position though in terms of the way industry is. Cumulative market share of top five players at 83% of September 2022, Fino’s share in micro-ATM is more than — more than of top banks like HDFC Bank, SBI, Kotak and IDFC. While competitors are aggressive on commercial, we have ramped up devices to own merchant and registered a 10% growth Y-o-Y in active terminals on own channel. On an overall basis, we are performing in line with our internal targets and we are stretching our teams in terms of the high margin products to grow. We are delivering the growth of 25% which we had mentioned in terms of guidance and H1, we had seen a growth of 32%. Our bottom line is growing disproportionately as we had envisaged because of the model which we are running.

One more point which is — which is actually has been shown in the numbers essentially as well is the operating leverage in play. This is very clearly evident from the cost income ratio of 26% in quarter two ’23 versus 30% in quarter two ’22. As Rishi said, we continue to focus on controlling cost and minimizing cost and thereby enhancing our EBITDA and PAT margin. The digital throughput is increasing. We continue to invest. We have a long-term strategy on cross-sell, up-sell and digital, along with our customer acquisition spree which is on.

With this, I would like to open the floor for question for Rishi and me and Anup to take. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Shreya Shivani from CLSA. Please go ahead.

Shreya Shivani — CLSA — Analyst

Thank you, sir. I have three questions. My first question is actually on the micro — the number of micro-ATM in the industry. So basically I went and saw that RBI has revised all the historical data on the number of m-ATMs in the industry, and your — like, I understand that there was a market share loss which was happening, but overall also the market share outlook lesser than what the earlier RBI data had. So if you can help us understand what’s exactly happened over here and how have historical data of past two, three years has been revised. First is that.

Ssecondly, in your CASA — in your CASA, while your subscription and renewal income is expected to be strong, the other than subscription and renewal income for this quarter is also quite strong, what we call the SMS and other charges, right? If you can talk about what exactly is happening over there.

And overall if you could tell me for the financial year FY’23 if you have any guidance on what kind of gross margins or PAT margins can we build in, because for both — for first two quarters we’ve had a gross margin of 30.3%, 30.9% now, which is sort of behind the kind of trends we used to have earlier which could be 33%, 32%, right? So if you could give us some guidance about the full year margins.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you Shreya for your question. Shreya this RBI data, market share, I have not seen the data. Let me see the data and probably I’ll come back to you on that, because we have to understand what parameters RBI has taken in their revised calculations, so we will come back on that.

As far as our CASA subscription, SMS and others charges are concerned, as you can see, the CASA numbers are growing as well as the numbers on the renewal itself has grown substantially. Now CASA constitute 18% of our total revenue. And CASA renewal has grown by 1.5 times on year-on-year basis. So what is your question specifically, in terms of SMS and other [Speech Overlap]

Ketan Merchant — Chief Financial Officer

Shreya, if I understood your question right. In addition to the renewal and the subscription revenue, the non-subscription revenue has also been growing, right? So the answer to that essentially lies is — is that — whilst 85% or odd is our subscription revenue, the growth is also being seen in non-subscription customer accounts as well, and here the the statewide geography isslightly different. Bihar is leading the pack in terms of the non-subscription revenue, or the accounts which are not subscription-based. However, as a philosophy, our philosophy is to have more and more kind of a subscription accounts because that gives us an annuity income, but there has been a growth, specifically in Bihar, MP and UP in terms of the non-subscription CASA revenue as well.

Shreya Shivani — CLSA — Analyst

Okay, so you’re saying that these are the non-sub. So how many products do you have in the non-subscription CASA category?

Rishi Gupta — Managing Director and Chief Executive Officer

So, Shreya, the way it will essentially work is, we have a — we have two products which are essentially there and we also have a Bavishya account which is which is for the minor as well. Our main focus essentially goes, as I am again saying it off is, the main varient is 449 variant which is there for subscription. And after that, we have two variants more which are on the non-subscription basis, in fact. But the focus is subscription.

Shreya Shivani — CLSA — Analyst

Okay, okay. Got it, got it. And my last question was on the margin guidance if any.

Rishi Gupta — Managing Director and Chief Executive Officer

Shreya, on the margin piece I’ve been saying across all the calls as well that we’ll be balancing our margins between the growth and profitability. The shift which is essentially happened between last quarter to this quarter is the share of our own banking. Our own banking share, which is a higher margin has increased. So our focus for the H2 essentially continues to have that ratio, eventually we want to shift, and which is what we have said earlier over next couple of quarters and more, going into 2/3, 1/3 kind of a scenario. And once that happens, there is a natural increase in the margin as which we have seen.

Also to add, both the growth drivers, one is CASA, that carries a margin of 58% and CMS is carrying a margin of 41%, and those are the growth drivers which are going to happen for H2 and subsequent quarters as well. So we are expecting reasonable increase, a steady increase, not an overnight 1/4 increase into the margin.

Shreya Shivani — CLSA — Analyst

Okay. So 1H, you are planning to push more of your products which are sort of your own — on your own banking channel or your CASA and CMS, right?

Rishi Gupta — Managing Director and Chief Executive Officer

Yes absolutely.

Ketan Merchant — Chief Financial Officer

Yes, Shreya.

Shreya Shivani — CLSA — Analyst

Okay. Thank you, sir. That answers my question. I’ll get back in the queue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ashish Kumar from Infinity Alternatives. Please go ahead.

Ashish Kumar — Infinity Alternatives — Analyst

Thank you. And Rishi and team, good job. Congratulations for good job done. So I had only one question. We see your borrowings number of around INR700 odd crores in the balance sheet. Given the fact that we are largely, or we are a Payments Bank, why are we kind of carrying this kind of a borrowings?

Rishi Gupta — Managing Director and Chief Executive Officer

Ashish, thanks for this question, and it’s a very good question. Whilst we keep on canvassing ourselves as a transaction bank and which is what we are, wherein 95% plus of our revenue comes from fee income. At the end of it, along with our banking license we have some leeway in terms of overnight borrowings. If you see, yes, the borrowings are INR700 crores. But if you see on the asset side, you will see that investments are essentially INR1,200 crores. So there is a opportunity which we have got that where we borrowed and we have also done G-Sec investment. These are risk-free G-Sec investment and there is a natural spread of anywhere in the range of 60 to 80 basis points as well. So this is how we, are essentially doing it. One more aspect, which is borrowing is sometimes uses for overnight settlement at times which is required for working capital kind of a thing. So both these numbers taken together and to be looking at the kind of the investment asset growth with a 60 to 70 basis point margin or spread which we are looking at is our reason for high borrowings, and these are overnight borrowings.

Ashish Kumar — Infinity Alternatives — Analyst

But in the current environment where the interest rates have become so volatile, do you not see that the risks have been gone up or is there a MTM loss that we have had or are the investments also less than a year?

Ketan Merchant — Chief Financial Officer

Thanks again, fantastic question. The kind of margin which we essentially having it off, it’s a straight curve which is happening. So whilst overnight rates are also increasing it off, we cannot go for a very long-dated investments, because you know, as a bank most of our investments, barring owned funds have to be within one year kind of a thing. There is a repricing of assets also essentially which happens off. So there has been a stress-testing which was done as well and we had a good cushion when the entire thing has done. Now in last six months time we’ve almost seen a 190 basis point increase in the interest rate. I can still say that there is a healthy margin which we are still coming off because of the nature of the curve which is there. This situation can come if we are — if any bank is very long and there is an inverted curve, but we can’t be long or we are not long and there is no inverted curve which is there. And as I said, this is not a long-term strategy or this is not the strategy. These are incidental benefits which we just try and get out of our license.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. Now that’s helpful. So on MTM basis you are saying that we haven’t taken any losses, MTM basis?

Ketan Merchant — Chief Financial Officer

No there is no loss which has come on account of MTM basis.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. And even after this gain from this thing, we are still at 11% ROE. So when do you expect us to kind of cross 15%, 16% ROE threshold.

Ketan Merchant — Chief Financial Officer

So the way the numbers are going to go up in the H2 and maybe in FY’23. ’24, you should look at an ROE of above 15% for sure in FY’23, ’24.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. Thanks, Rishi, and wish you all the best.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you.

Ketan Merchant — Chief Financial Officer

Thank you very, Ashish.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sri Karthik Velamakanni from Investec. Please go ahead. Yeah. Thanks, hi. I want to focus on just CMS business, where obviously the growth rates are very high, but from what we understand is into a lot of the micro-finance and NBFC management fee, they are focusing a lot on digital collections and especially using UPI for collection. How do –how do you see the risk of this business getting disrupted by the choice made by NBFC management’s to digitize their selection process.

Rishi Gupta — Managing Director and Chief Executive Officer

So good question. So when we look at the CMS business, and we have roughly 161 clients and you can see the number has grown substantially over the last one year. Our CMS throughput has also crossed INR10,500 crores which is a 94% growth on a Y-o-Y basis. Now it constitutes roughly about 8% of the overall revenue for us. For us what is important and Ketan mentioned in his speech in terms of the diversification which we are focusing on the CMS side. At one point our NBFC and the NBFC MFI portfolio was roughly about 85% to 90% of the overall number. Now that number has come down do roughly about 60% also. So substantially we are able to diversify ourselves in other businesses also. Not only the fact that we are engaging with NBFCs, NBFC MFIs, we are engaging a lot with e-commerce, logistics companies, cash management companies, even banks have now started to use our portfolio, or our CMS business which we do largely because of large distribution which we have been able to set up crores 12.2 lakh distribution points across the country.

So we feel the CMS business for us is still at a stage where we can grow at a good growth rate. As you can see, in this year alone we have grown substantially over our growth which we had last year. Because of the effort the teams are doing both at the supply side as well as on the demand-side, and large part of the CMS employees also use for cash withdrawal purposes, we don’t expect that the business will slow down at least for some time on the CMS side as you go forward.

Sri Karthik Velamakanni — Investec — Analyst

Thanks for that. The other question is RBI has launched the UPI facility for feature phones, have you seen a rapid take up of that in hinterland?

Rishi Gupta — Managing Director and Chief Executive Officer

So right now it is more of final stage and in the pilot stage itself. So once it gets rolled out, then we’ll have to look at it. But we had seen the star 90 — 9 feature also which came out a few years back. Feature phone usage for payments still are not very easy, comfortable mode like a smartphone. But we will have to see how the results of the pilot goes by and then we’ll be able to come back, maybe another few quarters it will take for us to see how it will feature. The [Indecipherable] has the experience, did not go that well on the feature phone side. But if we — if the feature phone experience on UPI goes well, that will be good for us also because that will lead to further stickiness of the customer. Our UPI throughput will mean it will go up and we can see a — expect a higher subscription income coming for us. So UPI while it may be a cost on one side, but we look at is as as a stickiness, as a cross-sell opportunity for us and the data which we have seen is that the customers who are more active on the UPI side, their renewal rates, their balances are far higher than a non-UPI customer.

Sri Karthik Velamakanni — Investec — Analyst

Thanks. And lastly there has been some talk about increasing the interchange in micro-ATMs and some of the AEPS products, etc. Have we seen any progress there?

Rishi Gupta — Managing Director and Chief Executive Officer

So this has been a longstanding demand from the industry that when ATM charges were increased around INR15 to INR17, the same should be done core micro-ATM AEPS. I think this is still under discussion. We have not factored that increase in our projection and we continue to work on the current pricing mechanism. But we will be very — it will be good for us from a financial point towards the price increase happens sooner than later.

Sri Karthik Velamakanni — Investec — Analyst

Okay. Yeah, so when you define your take rate for both the AEPS and micro-ATM is suggested implied take rate, right? Based on your average ticket size.

Rishi Gupta — Managing Director and Chief Executive Officer

Yes, yes, yes.

Sri Karthik Velamakanni — Investec — Analyst

All right. Okay. Thank you.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Umang Shah from Kotak Mahindra AMC. Please go ahead.

Umang Shah — Kotak Mahindra AMC — Analyst

Hi, good evening. Thanks for taking my question. Just a few of them. Wanted to understand, let’s say, if we were to look out — look for almost like, let’s say, six to eight quarters out, how should we — how should we vision our revenue mix? I mean, clearly of our growth drivers are kind of changing and given that CASA and CMS both are now reasonably sizable in the overall revenue pool, so how should we look at the revenue mix going forward?

Ketan Merchant — Chief Financial Officer

Umang. Thanks for this question. Ketan here. I think, let’s just do it in two aspects. One is, we’ve said that on an overall basis we’ll try and grow by 25% and we are on essential [Indecipherable] there. You are absolutely right that — we are — the base of CASA and CMS are increasing it off and in the past we’ve seen a growth of 97% or 86%. With a higher base, definitely this kind of growth will not be coming. However, in our anticipation, we are looking at anywhere in the range of 35%, 40% percent plus kind of growth on a sustainable basis over the next eight quarters. This may also be in a manner that in the immediate couple of quarters the growth may be higher. Overall, a 40% kind of a growth or 35% to 40% kind of a growth is what we are envisioning on CASA and CMS. However, the point to note essentially out here is, it is not only currently these are growth drivers.

As Rishi just mentioned it off, our customer acquisitions will also have the avenues of cross-sell and upsell with the digital stack also which we are making of. So there is an element of other products also which will come through. We have also got some new products, and I’ve mentioned it in my earlier call as well that maybe FY ’23 or last quarter or subsequent year first quarter is where we can start having some sort of income, which will be bottom line coming from these products as well.

Umang Shah — Kotak Mahindra AMC — Analyst

Okay. But just a little more clarity on CMS. So, have you also ventured into retail cash management services or it’s still predominantly e-commerce players, NBFCs and the likes of them?

Rishi Gupta — Managing Director and Chief Executive Officer

Yeah. We have also ventured into retail services also in constitutes of roughly about 2% of our overall 6% — 6.5% of the overall customers — of the overall collections for the month of September, 6.5%.

Umang Shah — Kotak Mahindra AMC — Analyst

Okay, sure. The other question was on your guidance related to the ROE achievement. Let’s say, if we were to target a 15% sort of return on equity in FY ’24 and a 25% sort of revenue growth, which implies that the margin expansion next year should be reasonably higher. Is that a fair assumption to make?

Rishi Gupta — Managing Director and Chief Executive Officer

Yeah, yeah. In fact, the number was minimum 15%. So, we are not saying that we’ll stop at 15%. Our own calculation, the way we are looking at it will be higher than 15%, but yes, 15% for sure.

Ketan Merchant — Chief Financial Officer

Umang, in addition to the margin play, this is also about the operating leverage, which both Rishi and I earlier mentioned it as well. With the volumes essentially increasing it off and the cost control measures which we are putting will also give us a higher leeway in terms of a PAT margin and eventually a higher ROE, in addition to the margin which we just discussed.

Rishi Gupta — Managing Director and Chief Executive Officer

So, Umang, what I would say from my line is that is for me this quarter two FY ’23 was a directional number. If you look at across the segments, on revenue side, on net margins, on EBITDA margins and on PAT margins, on your API versus own, you would see across all the parameters, there has been a jump. Somewhere it is substantial jump, somewhere it is — the numbers are lower. But on an average, there has been a jump which is there. So from us, it directionally when we look at it, you can make your own assumptions how the direction will be over the next six to eight quarters. But we are quite confident looking at the efforts and the results we have seen in quarter two. They’re directionally, as I mentioned also in my opening remarks, directionally we see to be a better place or in terms of most — a lot of control on revenue as well as on cost as we move into H2 and then into FY ’24.

Umang Shah — Kotak Mahindra AMC — Analyst

Okay. And just last clarification, which I wanted on Slide number 24. We have debit card spends per transaction. This includes just the cost spends or also ATM withdrawals?

Rishi Gupta — Managing Director and Chief Executive Officer

This also include the ATM withdrawals, all put together.

Umang Shah — Kotak Mahindra AMC — Analyst

Okay, okay. All right. Okay. Thank you so much, and good luck for future quarters. Thanks.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you, Umang.

Ketan Merchant — Chief Financial Officer

Thank you, Umang.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ashish Kumar from Infinity Alternatives. Please go ahead.

Ashish Kumar — Infinity Alternatives — Analyst

Thanks a lot for taking me again. I just wanted to check in this, the CASA accounts that we opened up, between the subscription base and having our own CASA-based accounts, does it now — given the fact that the interest rates have moved up by almost 200 basis points and were more normal, does it make more sense to have those CASA customers as our own customers or does it make sense for us to still pass them on to another bank on a subscription terms [Phonetic]?

Rishi Gupta — Managing Director and Chief Executive Officer

So, in this — sorry, let me just clarify, Ashish. Whether it’s a new CASA customer or a subscription, this is our own customer only, because subscription means that is in the second year, new means is first year. So that’s the only difference with the second and third year, maybe fourth year, but that’s the only difference. So whether you look at new CASA subscription, they are our own customers. Whatever we opened for another bank comes under BC income. So those numbers are not included here.

It’s good you pointed it out. So let me clarify for everybody on the call. The CASA number of 7.6 lakhs is Fino customers. Fino customers have opened account in Fino bank, not with who have opened accounts through Fino in some other banks. That numbers, we don’t mention in this, and that goes into the other bank. But these are our own customers. And you are right. So as you would see, our deposits have also gone up substantially in the last one year because of the base, which is just grew by 77% on a year-on-year basis, which is substantial growth. And obviously, with interest rates becoming better, we are expecting a higher treasury income on these accounts.

Ashish Kumar — Infinity Alternatives — Analyst

Sure. And how do you see the CASA number, because it’s almost, as you said, it’s gone by almost 75%, 80%. So how do you see that number balance, let’s say, in the next couple of years? Do you see that 70%, 80% CAGR kind of a number 60%-plus kind of a CAGR on that number?

Rishi Gupta — Managing Director and Chief Executive Officer

So, the base itself has gone up now, 60 lakh accounts we have. And while we believe there are a lot of people who already have a bank account but would like to come to a Fino bank because of multiple convenience, simplicity, responsible bank, all that put together. So we believe the numbers will keep on going up to look at a 60%, 70% growth over a higher base, maybe a little bit stretched. But definitely we are looking at like we have done about 2.5 lakhs on an average in this quarter. Our target would be to look at 3 lakh plus over the next couple of quarters as such, maybe if quarter one or quarter four of FY ’23 or FY ’24, you should look at an average around that number.

So, we will continue to focus our strategy, as I mentioned also, is moving from — is not moving, it’s adding to our transaction income. So as the transaction income keeps on going up, we keep on adding more customers, and then it leads to more higher annuity income. And then, a host of other benefits, which we get whether on treasury or otherwise on CASA, plus the renewal income of — in the next year gives us a substantial higher margin product because in the second year, we don’t issue a debit card. So that cost we saved. So, substantially the margin goes up by about 15% or so, 15% to 20% in the quarter — in the next year when it comes up for renewal. So, CASA is a very good strategy from transaction to ownership to cross-sell is what we are focusing on as we continue in our payments bank then.

Ashish Kumar — Infinity Alternatives — Analyst

Sure. And in terms of CASA, just remind me, how much do interest do we pay the customers?

Rishi Gupta — Managing Director and Chief Executive Officer

2.75%.

Ashish Kumar — Infinity Alternatives — Analyst

And do you see that given the fact that some of the other competition started to increase rates, do we see that kind of increasing?

Rishi Gupta — Managing Director and Chief Executive Officer

I don’t think so, because in our case, savings, people have looked at fixed deposits as a saving mechanism, money, which are there in savings accounts are largely transaction money. If I look at any new — even SBI has come down. They have reduced their rate, while they have increased on the FD. On the savings account, they have reduced it from 2.75% to 2.7%, something like that. So I don’t expect that the savings account interest rates are going to, substantially or go up in the next year.

Ashish Kumar — Infinity Alternatives — Analyst

So, Rishi, what I was trying to ask is that while we are at 2.75% and we compare ourselves to some of the larger names. But if I look at it slightly differently, our average CASA balance is around INR10,000 per account.

Rishi Gupta — Managing Director and Chief Executive Officer

No, it’s about INR1,100 per account.

Ashish Kumar — Infinity Alternatives — Analyst

INR1,100 — sorry, INR1,100 per account. So, is there a way to kind of increase that number substantially higher given the fact that we already have these customers to buy a factor of 2 times, 3 times, by, let’s say, offering us staggered interest rates so that people don’t even have to go for FDs to the other banks, because a lot of the merchants might be having much larger cash balances.

Rishi Gupta — Managing Director and Chief Executive Officer

So, in our case also, see, Fino — money which people keep in savings account and Fino is largely for transaction purposes. We don’t promote ourselves as a deposit-taking bank. We promote us as a transaction bank. And people who transact more with us whether through our multiple debit cards, withdrawal options or UPI or digital, tend to have higher balances as such.

In one of our slides, in fact, we have mentioned that in the first quarter of FY ’24, FY ’23 versus FY ’22, our average balance has gone up from INR1,100 to INR1,490 around that level. So, you will see that as we are going forward, our balances and the customers are also growing, that is again a factor of more transactions under trust, which is getting built up from a customer point of view. And your point is well taken. We are pushing, yes; so FY ’21 to FY ’23 from INR1,107 to INR1,490, if you look at slide number 11. So, your point is well taken. And we are also trying to see if we can build — push more on building up balances in those accounts because now with the treasury income or some income coming on the treasury side, it becomes beneficial for us.

We believe through making them more transacting more active through a lot of nudges, which we do whether through our own platform or [Indecipherable] platform, we believe we have seen a growth in our balances, and that is the journey we will continue to push. So you should look at higher balance growth in the years to come.

Ashish Kumar — Infinity Alternatives — Analyst

Sure. Okay. And that’s all from my side. Thanks, and wish you all the best.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question is from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.

Chandrasekhar Sridhar — Fidelity International — Analyst

Hi. Good evening. I have a few questions. One is, can you just share where are you just in terms of realization on a CASA account right now? And…

Operator

Sorry to interrupt you, Mr. Sridhar. [Technical Issues] Mr. Sridhar, we request you to please rejoin the question queue.

Rishi Gupta — Managing Director and Chief Executive Officer

Chandra, we are not able to hear you.

Operator

So we’ll take the next question from the line of Kamal Khatri [Phonetic] from ASML Holdings. Please go ahead.

Kamal Khatri — ASML Holdings — Analyst

Yeah. Hi, Rishi. Actually I have three questions. One is, when you mentioned your CASA income; does that also include the interest income, which we earn on the customer balances? What’s the plan on the BC income? We have seen that it is reducing from quarter-on-quarter. So what’s the long-term plan on that? And I was also seeing your employee cost has reduced. It has reduced marginally, but what is the reason for reducing the employee cost?

Ketan Merchant — Chief Financial Officer

Yeah. So — hi, Ketan here, I’ll just take your question in maybe the reverse order first. There has been a reduction in the employee cost, a marginal reduction. As we said, we are working on the operating efficiency kind of a thing. We have had a reduction of around 80 people in terms of our headcount and that is what it is leading to, one is that. Second aspect was in terms of your CASA, right? Sorry, can you just repeat your CASA point?

Rishi Gupta — Managing Director and Chief Executive Officer

I’ll take the BC one. BC income, yes, we had been saying that as a strategic part, we see income is something which we continue to process with some kind of our existing clients. It is not, have been identified as a growth driver. Our focus is increasingly shifting to a B2C kind of a product where we have larger control and lesser volatility as well. So, from a BC standpoint, in times to come or in a couple of quarters and couple of years, do we see a strategy of growth out there? Our consistent message essentially is no.

We will sustain the current existing client and try and make more out of that rather than aggressively pushing for an increase in our B2B income. This is in line with our strategy to enhance the B2C. Sorry, the third one was on the CASA. And your question was, does it cover the treasury income on CASA, right, that’s the question was?

Kamal Khatri — ASML Holdings — Analyst

Yes, that’s okay.

Rishi Gupta — Managing Director and Chief Executive Officer

No, that is coming into others. That is separately classified. This is essentially largely transaction-based CASA income.

Kamal Khatri — ASML Holdings — Analyst

Got it. Thank you so much.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you very much. Mr. Khatri, is that answer to your question?

Kamal Khatri — ASML Holdings — Analyst

Yeah, yeah, yeah. I’m absolute.

Operator

We’ll take the next question from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.

Chandrasekhar Sridhar — Fidelity International — Analyst

Hi. Can you hear me now?

Ketan Merchant — Chief Financial Officer

Yes, yes.

Chandrasekhar Sridhar — Fidelity International — Analyst

Hi. Sir, I just wanted to know what’s the realization right now which you’re making on the CASA per subscription. And why you said the renewals are up 1.5 times, what have been the renewal rate?

Rishi Gupta — Managing Director and Chief Executive Officer

So, on the realization is roughly around INR360 to INR375 per account, which is there on the shop. On an average, if I include the subscription and non-subscription put together will be around INR325 or so. And on the renewal rate, as we mentioned, we are at about 60%-odd in terms of recovery on the renewal side from the CASA, from first year to the second year and the year onwards. I hope it answers your question.

Chandrasekhar Sridhar — Fidelity International — Analyst

Yes. Yes. Okay. Okay. And do you give some takes which you made that you’re going to or thinking of a small finance bank license, I don’t know what your thoughts are on the same.

Rishi Gupta — Managing Director and Chief Executive Officer

So, there has been a lot of discussions we have been doing on this as such from a small finance payments bank to small finance bank. And if I review from a lot of bankers as well as RBI angle is a natural transition, which is there. From a business sense point of view, it makes more business sense as it enhances our product book. So, we look at payments bank to SMB as an enhancement of a product book rather than a lending bank purchase [Phonetic]. So there is a big difference in the thinking. We are a transaction-focused bank. Our 100% income comes from transaction, roughly INR1,000 crores plus was the transaction income, which we did last year.

Our business is the way which build up is through merchants rather than branches. And with merchants also, we have been able to raise maybe INR1,000 crores of deposits put together. So that’s been a unique model, which is there. So, even if we convert or transition into an SMB over the next two, three years, it’s going to be largely a transaction-focused bank, where data monetization will play a big role. And it will not be an asset-driven bank to a large extent. It will be a cross-sell transaction-driven bank.

That is what we — on the lines that which we are thinking when we look at as an SMB. Just to clarify, SMB will be up roughly about 18 to 24 to 30 months’ process, depending on when you apply, you get approval and then you transition, you get the technology in place. So it is not going to happen over the next — the conversion or transition may not happen over the next 18 to 24 months.

Chandrasekhar Sridhar — Fidelity International — Analyst

Understood, understood. And just — can I understand, where are we on a tax shield right now? Just how long do we go on a zero time?

Ketan Merchant — Chief Financial Officer

Yes. So currently, Chandra, Ketan here. Currently, based on our internal modeling, essentially, which we have done is we will continue to have the accumulated losses coming to us for this year and part of next year as well.

Chandrasekhar Sridhar — Fidelity International — Analyst

Okay. Okay. So, for the next — somewhere in the middle of the next year, you start being impactful?

Ketan Merchant — Chief Financial Officer

Depending upon the kind of the growth rate which we are essentially going through.

Chandrasekhar Sridhar — Fidelity International — Analyst

Yes, understood. And just now — just given where the market cap is and given that we have some — there is a reasonable amount of cash. Is there a thought process on any buyback or something which you’re doing or are we restricted because of no capex shareholding?

Rishi Gupta — Managing Director and Chief Executive Officer

We are not at this stage. Our focus is on building the bank and to focus on our performance. You can see the numbers are showing on that account. We are not looking at any buyback at this stage.

Ketan Merchant — Chief Financial Officer

I think, Chandra, just to elaborate on this, the primary proceeds which we have raised, we essentially wanted to put to use for making a good profitable digital tech-savvy bank, which can generate the ROE, which Rishi mentioned in the earlier call as well. So that is where our thought process is that utilize it for these purposes and continue to deliver strong results, which is what we’ve seen in quarter two as well.

Chandrasekhar Sridhar — Fidelity International — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Rahul [Phonetic], an individual investor. Please go ahead.

Rahul — — Analyst

Hi. Thanks for the opportunity to ask the question. So, my question is on the borrowings and the subsequent investment.

Operator

Sorry to interrupt you, Mr. Rahul. The audio is very low from your line. Please increase the volume of your device.

Rahul — — Analyst

Okay. Is it better now?

Ketan Merchant — Chief Financial Officer

Yeah, relatively better, Rahul. We can hear you.

Rahul — — Analyst

So my question is on the borrowings and the subsequent industries you are making borrowings. So what is the kind of expected returns from those investments and what that is still the worst case and the best case return do you expect?

Ketan Merchant — Chief Financial Officer

Yeah, Rahul. I’ll try and answer those as well. But let us actually reiterate it off what Rishi and I mentioned earlier as well that we are a transaction-led bank. We have a regulatory license, which gives us a leeway, but that is not our primary business. We are having some opportunities, which we will try and use it off.

Now, coming to the question, what is the kind of return which is expected it out of this? We are anyway looking at somewhere around a spread of 70 to 80 basis points, which I had earlier said it up. In certain cases, earlier it was also in the range of around 150 to 180 basis points. Our investment total not only constitutes borrowing, it also constitutes some of our balances, which Ashish was earlier alluding to. As a payment bank license, all the customer deposits, which we get, we end up paying — on the saving account, we end up paying 2.75%. And we have the leeway to deploy it into one-year G6. And that’s where the margin essentially is anywhere in the range of 300-odd basis points. And for all the reasons which Rishi earlier elaborated, we’ll try and maximize that in the current interest rate scenario.

Rahul — — Analyst

Okay. So, I understand this is for short-term opportunistic investment, because if I go by the numbers you shared like 70 basis points to 80 basis points, so it is not a huge number that we should be going after, right?

Ketan Merchant — Chief Financial Officer

No, no, no. I think I again reiterate. Yes, it is opportunistic. It was huge at some point of time, but we are not going to change our strategy from a transaction bank to a balance sheet bank.

Rahul — — Analyst

Yeah, yeah. Okay. Wonderful. So that is quite competitive. Thank you.

Ketan Merchant — Chief Financial Officer

Thank you, Rahul.

Operator

Thank you. The next question is from the line of Visvanth Bopanna [Phonetic], an individual investor. Please go ahead.

Visvanth Bopanna — — Analyst

Hi. Good evening, everyone. So, just wanted some more information regarding the 10% acquisition in PaySprint. Sorry if I missed the name. Just curious as to how you’re integrating that into the current stake and how you are going about it? And if there are any plans on further increasing the stake based on performance or any such parameters?

Rishi Gupta — Managing Director and Chief Executive Officer

So in the case of PaySprint, PaySprint is an entity which is building up an API stack. We are doing substantial business from that. I’ll just share the numbers I’m getting it from my team. So we’ll — in terms of how much business we have done through PaySprint, we are also doing some technology development through them. We have done our first tranche of disbursement as such.

Looking at the performance, we may look at second tranche also by March, which is there. Our total holding will be about — 12.9% is the maximum holding which we are looking at. In this year, we have done business of roughly INR6,500 crores of throughputs through PaySprint.

Visvanth Bopanna — — Analyst

Thank you so much.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Prasad Kulkarni, an individual investor. Please go ahead.

Prasad Kulkarni — — Analyst

Good evening, sir. My question is basically on the product distribution business, basically third-party product distribution business, which is something like loan referral than third-party insurance product distribution and third-party mutual funds distribution. So how that business is shaping up presently, sir?

Rishi Gupta — Managing Director and Chief Executive Officer

So, on the third-party products, we have been doing loans on graph of banks and NBFCs in the last few years. On an average, you should do around INR100 crores of loans for a bank. On top of it, we have started to also offer consumer loans as to the dealers and merchant loans also. We have seen that there is a jump of roughly 47% in the quarter two over quarter one from INR40 crores to INR57 crores, if I get the numbers correctly on our lending piece.

Insurance, we — from INR40 crores to INR59 crores, there’s a 49% jump on our lending, which includes the gold loan as well as the other loans, asset [Phonetic] without the BC loan. BC loan is over and above this. And on our insurance, we have started to partner with more insurance companies and we have started to see some uptake on insurance. Let me tell you, both lending and insurance are our bottom line-driven businesses, not rather than the top line. Mutual funds, we received the approval from the regulators. We are in the process of integrating with the partner. So, maybe in quarter four or — quarter four, we’ll be able to do that.

And also, international remittance is also under user — closed user group, as I mentioned earlier.

Prasad Kulkarni — — Analyst

Sir, one more question. Is there any plan to get into own insurance products for bottom of the pyramid or no ticket mutual fund?

Rishi Gupta — Managing Director and Chief Executive Officer

So we will do it through partners only. We don’t plan to apply for insurance presence or mutual fund like that.

Prasad Kulkarni — — Analyst

Okay, sir. Thank you very much.

Operator

Thank you. Ladies and gentlemen, we’ll take the last question from the line of Sheryl Samuel [Phonetic], an individual investor. Please go ahead.

Sheryl Samuel — — Analyst

Thank you. Congratulations on the excellent results to Fino team. My question is as follows. I believe there is some — there was much of plans from the parent company Paytech with Payments bank. Could we get a standard update on that?

Rishi Gupta — Managing Director and Chief Executive Officer

So, as per the regulation after five years of completion of the bank, there is no promoter holding restrictions on Fino Paytech. So, the plan to merge with Fino Paytech and Fino Payments Bank is definitely which is there in our offering. Right now, we have not taken any internal approvals or applied to the regulator on the same. Whenever we will do, it will be noted to the stock exchanges.

Sheryl Samuel — — Analyst

Thank you, sir.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you, everyone, for your participation today. As you can see, a lot of hard work has started to give us better results both on the margins as well as revenues. Our strategy around diversification, adding more businesses on the ownership side has also started to give good results. The cost controls, the operating leverages has started to benefit us. And as we go forward, you should see better numbers coming from Fino in quarter three onwards, whether it’s on the margin or on the cost controls and on the revenue side. So, thank you for participating again, and stay invested. Thank you.

Ketan Merchant — Chief Financial Officer

Thank you very much.

Operator

[Operator Closing Remarks]