FINO Payments Bank Ltd (FINOPB) Q3 FY23 Earnings Concall Transcript

FINO Payments Bank Ltd (NSE: FINOPB) Q3 FY23 Earnings Concall dated Feb. 03, 2023

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

Renish Bhuva — ICICI Securities — Analyst

Ashish Kumar — Infinity Alternatives — Analyst

Bhavna Jain — Evergrow Capital Advisors — Analyst

Umang Shah — Kotak Mutual Fund — Analyst

Kamal Khatri — AMSL — Analyst

Krishna Hegde — Individual Investor — Analyst

Presentation:

Operator

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.

Rajat Gupta — Go India Advisors — Analyst

Yeah, thank you, Rutuja. Good afternoon, everyone, and welcome to Fino Payments Bank earnings call to discuss the Q3 and nine 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. 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 participating in our earnings call today.

I want to start with declaring that this quarter has been highest profitability quarter for Fino. Our nine months profitability at INR43 crore is higher than full-year profitability of FY’21-’22, and a growth of 71% over the previous nine months.

Now let me go into the thought as to the reason for profit growth. As I have said in the past, for Fino, our philosophy 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 [indecipherable] 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 as underlying 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 five-and-a-half years of operation as a payments bank, we aim to provide simplified banking products to millions of hardworking Indians. With financial inclusion and profitability in our mind, our products like DMT, which is domestic money transfer, Aadhaar-enabled 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 our high-margin products and our key focus products. 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 opened new account, every 10 second and also focus on enhancing distribution network, banks the under-bank 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 high-profit margins products backed by a well-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 nine-month FY’23 laying a strong foundation for the years to follow. While Ketan will soon go through the specifics of the quarterly performance, I want to take this chance to quickly review a few highlights. As you can see, in Slides 4 and 6, quarter three is our most profitable quarter till date. Our PAT has grown 38% year-on year with EBITDA at INR38.9 crores with increase of 27.5% quarter-on-quarter and 50.2% year-on year basis.

This quarter, our net revenue margins stood at 32.1% in quarter three FY’23 from 30.9% in the last quarter and it also exceeded our expectations. If you remember, we were at 30.6% margin in quarter one of FY’23. So there is nearly a 150 basis point jump from quarter one to quarter three on a net revenue margin. This is focused effort on product mix to enhance profitability. Our profit margins improved from 4.6% in quarter two FY’23 to 6.1% in quarter three FY’23. In quarter three 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 three, taking our total accounts to 67 lakhs as of December 31, 2022, up by 71% on 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 acquisition.

During quarter three ’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. Nine-month FY’23 subscription and renewal revenue reached INR111.8 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 is well within our grasp.

While digital is catching up in rural areas, cash remains primary method of payment, resulting in our cash CMS throughput doubling year-on-year to 118% in quarter three FY’23. In quarter three FY’23, our distribution network grew by 6% with the total merchant network of over 13 lakhs. Our digital footprint increased even further and climbed by [indecipherable] on a year-on-year basis in quarter three FY’23. CASA and CMS, our high-margin products, have achieved 58% and 40% margins in quarter three FY’23 respectively.

With business momentum being good, we continue to maintain a strong growth outlook with profitability being a prime focus. Over the next three to four 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 being 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 and FY’23-’24, our priorities are, continue to aggressively push the customer acquisition, enhance partnership and focus on CMS group, digital framework enhancing — enhancement through fintech partnerships. Expand the products 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 creditable payments bank and also enhance the shareholder value in the long term.

With this, I would like to hand it over to Ketan for his comments on financial performance. Thank you.

Ketan Merchant — Chief Financial Officer

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 our largest region, 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 two parts, one is YTD FY’23 perspective and the quarter three 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 lakh merchants, and a 50% YTD growth. Our throughput grew by 40% and revenue grew by 25% on 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 it. Our annuity income is being created through renewal. Numbers are testimony to the same. This is interesting on a YTD basis renewal income has increased by 2.8 times from INR16.8 crores in nine-month FY’21 to INR47.6 crores. This is where we are bringing — building a sustainable business.

CMS is another growth factor, as Rishi mentioned wherein our throughput has increased by 105% to INR33,000 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 reckon 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 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 at December ’22, 36% of our 60 lakh customers were active on digital payments. Presently, digital throughput accounts for 20% of our overall 1.87 lakhs throughput in for a nine-month period.

Now moving onto 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 the 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 net 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 INR29.3 crores, up 21% quarter-on-quarter and 105%. We have diversified partnership with business like e-commerce, retail, supply chain, logistic 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’s ecosystem throughput increased by 21% Y-o-Y, which helped us to increase our market share from 11% in quarter three FY’22 to 12% in quarter three 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 three FY’23 compared to 16% in quarter three 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 the open banking, a shift from 64 to 36, this is in line with our endeavor to enhance profitability through own high-margin products. Point to note is that the focus product mix approach has resulted in gross margin of 32.1%, increase of 120 bids, 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 three FY’22. PAT margin for the quarter has increased to 6.1%.

One point which has to be reckoned is that whilst 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 platforms for further scalable potential and that will be on a profitable basis as well.

Before we go to Q&A, I’d like to summarize financial performance in three parts, one is CASA acquisition and related annuity income being set, product mix being skewed towards higher-margin products, thereby leading to margin enhancement, and finally, operating leverage in the play. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Shreya Shivani from CLSA. Please go ahead.

Shreya Shivani — CLSA — Analyst

Hi. Hello.

Operator

I’m sorry to interrupt you, ma’am, but your voice is breaking. Can you please check?

Shreya Shivani — CLSA — Analyst

Hello.

Operator

Yes, please go ahead.

Rishi Gupta — Managing Director and Chief Executive Officer

Shreya, you may ask your question.

Shreya Shivani — CLSA — Analyst

Hello.

Operator

Yes, Shreya. Please go ahead with your questions.

Shreya Shivani — CLSA — Analyst

Yeah, congratulations on a good set of numbers. I have three questions. First is on the AEPS report, so —

Operator

Shreya, sorry to interrupt, but your voice is breaking.

Shreya Shivani — CLSA — Analyst

Yeah, I’ll call from another line. Okay, sure.

Operator

Thank you. [Operator Instructions] The next question is from the line of Renish from ICICI, Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yeah, hi, sir. Congrats on a good set of numbers. So sir just two questions from my side. So one on the run rate of the CASA customer acquisition, which remains flat sequentially at around 7.6 lakhs, so how one should read this data point. I mean, despite the higher renewals, which essentially means that the new to bank customer acquisitions 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 remained flat.

Rishi Gupta — Managing Director and Chief Executive Officer

Do you have one more question. Should we take both the questions?

Renish Bhuva — ICICI Securities — Analyst

Yeah. And sir, secondly, in the revenue split, we have the other revenue, which is now contributing almost 11% or almost INR33 crore of the total revenue. So can you just tell us some more details about what kind of revenue stop in this other line item.

Rishi Gupta — Managing Director and Chief Executive Officer

So, thank you, Renish, for your question and I’ll 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 two things which have to be looked into. One is the new to CASA. And the second is the renewal rate. If you see, the renewal is already 75% of the new acquisition, which we have done in the nine months, so renewal is as important as — as we look at the new acquisition. In fact, renewal gives us a better profit margin compared to a 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 something 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 would somewhere be between 2.5 to 3 lakh on a consistent basis over the next nine to 12 months is what I would say, but that is — 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.

Renish Bhuva — ICICI Securities — Analyst

I don’t know, I absolutely agree sir. [indecipherable] 3 lakh customer on 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.

Rishi Gupta — Managing Director and Chief Executive Officer

No there is nothing, which is anything specific, it is going to add 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 by another 10% to 15% over a period of time.

Renish Bhuva — ICICI Securities — Analyst

Got it and probably just a 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 activation run rate also, because once we start getting more merchants, ideally, this number should go up, right?

Rishi Gupta — Managing Director and Chief Executive Officer

Yeah, absolutely, you are right. Everything for us is basis the merchant on-boarding layer. So as the merchant on-boarding numbers will keep on increasing, we should — we should look at 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 on-boarding continues to be our biggest input driver for all our businesses including CASA.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. Okay. This is very helpful, sir. Thank you. And on these other revenue line items, Ketan, if you can highlight —

Ketan Merchant — Chief Financial Officer

Hi Renish. I think I’ll start — I have noted your question about the other 11% income which is for the quarter and around 9% for YTD case. The answer to that is addendum of what Rishi said. Rishi mentioned about the CASA, the new acquisition, which we are going. I think one point which I also want to tell the out here is that in addition to CASA for us is now divided into two 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 two components, which has come on this 11% kind of a thing. One is the exchange rate — or the interest rate cycle which has gone up, that is essentially helped us. Our CASA balances as I said or rather 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 — I should say that on a year basis, our average balances have increased per customer has increased from 1,100 to around 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 three taken together would be our growth strategy.

Renish Bhuva — ICICI Securities — Analyst

Okay but subscription and renewal income will be part of the CASA line item, right. I mean, this INR33 crores will be essentially because of the higher interest income on the float —

Ketan Merchant — Chief Financial Officer

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 is CASA, the float income of that is essentially coming out on the balance sheet side, which is others.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. This is very helpful, Ketan. Thank you so much and best of luck, Rishi and Ketan.

Ketan Merchant — Chief Financial Officer

Thank you. Renish.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you.

Operator

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

Ashish Kumar — Infinity Alternatives — Analyst

Hi, thank you and congratulations for good set of numbers. Couple of questions, which I had. One was in terms of the revenue growth, if I just look at Y-o-Y growth just for the quarter, we have got a 14% revenue growth as compared to, let’s say, the nine-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 — growth or —

Rishi Gupta — Managing Director and Chief Executive Officer

While Ketan will go into specifics, but two 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 focus is on that rather than on 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 our own business has gone up to 65% from 62%, 63% few quarters back. So that is one reason.

The second reason is also one of our product, 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 de-growth 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 it, some of our offers 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 profit 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 as CASA revenue. So those are the three, four high-level things. Ketan can probably answer some specifics, if he wishes to.

Ketan Merchant — Chief Financial Officer

I think, Rishi, you fairly covered all the four points, which I was going to say up. Ashish, if your question essentially means that by any means it is element of slowdown? The answer is essentially no. It is more about high-margin product is what we are focusing on.

Ashish Kumar — Infinity Alternatives — Analyst

Sure, now if I look at Micro ATM plus AEPS and BC banking and you have provided that in a slide that those are the two income streams, which are kind of seeing a Y-o-Y de-growth. But would it be fair to say that over the next two, three years, those things will continue to de-grow, while the other pieces will continue to grow?

Ketan Merchant — Chief Financial Officer

Okay, let me just take it point-by-point or sequence basis as well. In terms of BC banking, as we 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 withdrawal, other part of 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 de-growth which is coming off. How does this business essentially grew from here on? 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 mined, as long as we can — we continue to have that footfall and convert them into an account, every 10 second as Rishi said in his speech, if you can open a new account, an account of a Micro ATM or 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 lines.

Ashish Kumar — Infinity Alternatives — Analyst

Sure. But then — so what you’re 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 there will be like sub-15%?

Ketan Merchant — Chief Financial Officer

We’re not quantifying in that sense, but from a directional business peer 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 had the ownership come in.

Ashish Kumar — Infinity Alternatives — Analyst

Sure. The second one was in relation to the DMT business, which is the 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 growing further or is it just a phase-out of the API business that Rishi talked about.

Ketan Merchant — Chief Financial Officer

You rightly said, as I also mentioned in my earlier script that DMT business has grown by 27%, if I look at YTD kind of a number, yes, partly on account of the rebound 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 our 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 a growth and not only, Ashish, on the open banking thing but also on — or rather more on our own banking channel. That’s the plan, which we have for DMT.

Ashish Kumar — Infinity Alternatives — Analyst

Sure, but this quarter, if I look at just this quarter growth is down to 1%. Anything specifically?

Ketan Merchant — Chief Financial Officer

Yes, yes. Lot of times, the festive season, then 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– there is lot of competition in DMD, 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.

Rishi Gupta — Managing Director and Chief Executive Officer

So let me just give some facts, Ashish, it’s an important question, and this alludes from our earlier conversation where I said we are converting customers who come to our point for transaction into our own customers with that ownership strategy which we are talking about. If you look at the fact that our UPI volume has grown by 184% — sorry 130 — 84% in the last one year — last nine months, April to December. And our P2M has grown by 133% in the last nine 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 remittance transaction is about INR8 to INR10 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 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 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 in 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 our 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.

Ashish Kumar — Infinity Alternatives — Analyst

Absolutely. Understood. And as to increase in the share of your higher-margin business —

Operator

Sorry to interrupt you, Mr. Ashish, may we request you to please rejoin the queue. We have participants waiting for their turn.

Ashish Kumar — Infinity Alternatives — Analyst

Sure, sure. No problems.

Operator

Thank you. The next question is from the line of Bhavna Jain [Phonetic] from Evergrow [Phonetic] Capital Advisors. Please go ahead.

Bhavna Jain — Evergrow Capital Advisors — Analyst

Yeah, hello. Thank you. Thank you for taking my question. I just had —

Operator

Sorry to interrupt you, Bhavna Jain, but your voice is not that clear.

Bhavna Jain — Evergrow Capital Advisors — Analyst

Hello, can you hear me?

Rishi Gupta — Managing Director and Chief Executive Officer

Yes, Bhavna. Please continue.

Bhavna Jain — Evergrow Capital Advisors — Analyst

Yeah, thank you for taking the question. I just had a follow-up question on the same CASA and CMS. As just mentioned that CASA and CMS are our 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, any strategy going forward?

Rishi Gupta — Managing Director and Chief Executive Officer

So if you look at our numbers on CASA and remittance — CASA and CMS, in the last two years, if 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 just 25% of the substantial growth of 9% in the last one year. We believe CASA — I’ll come to CASA first, we believe CASA is a customer acquisition engine, which we have buildup, 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 one 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 a digital stack and the UPI push which we are doing, we expect higher balances usually lead to a higher interest income. 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 way. So CASA will continue to grow.

On the CMS part, if you recall, we had mentioned two, three 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 it is BFSI and 45% is non-BFSI, and it includes multiple kinds of companies from NBFC, MFIs, to logistics companies to e-commerce, to CRAs to all your food delivery — your delivery kind of company. So we are well diversified portfolio. India, while it’s quite interesting to know and it’s kind of still nobody has a clear answer, by both the digital as well as the cash economy, both of them are growing, if you look at the cash in circulation is also digital is also growing. So 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 will 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.

Bhavna Jain — Evergrow Capital Advisors — Analyst

So briefing it like, can you a small target as to this like right now if I could your presentation, CASA and CMS includes 3% of the total revenue. So, like, in the few couple of months or years, if you can target this number could really go to, if any brief.

Ketan Merchant — Chief Financial Officer

Bhavna, at this stage — Rishi, just mentioned that we are bullish about it, not giving any specific guidance in terms of number, etc, but the engine is on and we have to, you know, be cognizant of and I mentioned it earlier as well that on a nine month YTD basis, the renewal aspect which Rishi mentioned and. I also mentioned has grown by 2.8 times 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 customer 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.

Bhavna Jain — Evergrow Capital Advisors — Analyst

Sure sir, no problem. There’s only one more question. In the last call, you mentioned something about partnerships with various fintechs and all that. Any progress on that front, any idea on that. What’s going on ahead?

Rishi Gupta — Managing Director and Chief Executive Officer

So good question, Bhavna. So couple of things which we’re working on. We already have got 40 to 50 partnerships on the API side with our — on the 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 rollout that partnership, February or March, we’ll be able to rollout or maybe this quarter. There are a couple of more which are lined up as such, so once we start on the first, we will be able to then quickly rollout 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.

Bhavna Jain — Evergrow Capital Advisors — Analyst

Definitely, definitely. And any other avenue that you guys are looking for — which you just don’t know yet or not mentioned yet, and can we disclose if any?

Rishi Gupta — Managing Director and Chief Executive Officer

So we are — we obviously continue to look at options and opportunities which are there. As you can see, our focus on digital has become quite aggressive in the last one year, and we are seeing lot of green shoots on that. As I mentioned, nearly 55% of our UPI transactions which are P2P transactions, there we have seen a 133% growth in the last nine 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 six to nine months.

Bhavna Jain — Evergrow Capital Advisors — Analyst

Understood, understood. Thank you so much for your time. Thank you.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you, Bhavna.

Operator

Thank you. The next question is from the line of Shreya Shivani from CLSA. Please go ahead.

Shreya Shivani — CLSA — Analyst

Yeah, hi. Congratulations on a good set of number. I have three questions. First is on the AEPS, while, yes, there has been year-on year growth. But if I see the AEPS throughputs from 1Q to now, sequentially we’ve been declining for — this is the second quarter that we have 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 saying that on 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 etc, if you can make some commentary on that.

And lastly, on your international remittance bit, if you can give an update and also I wanted to understand that RBI has banned SBM’s — State Bank of Mauritius’ international remittance, some restriction 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 three questions.

Rishi Gupta — Managing Director and Chief Executive Officer

Yeah, thank you Shreya for your questions. On the first — on the AEPS growth, see, AEPS growth, we are not seeing that the competition is heating up. In fact, if you read our commentary — 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 is a decrease in the market share. Market share has gone up by 1% in the last one year. The AEPS Itself as a market, maybe because of largely because of the UPI business we believe is somewhere it’s getting eaten up, UPI P2M is getting eaten up in that segment. So that is the largely that piece. AEPS also from an overall industry point of view has been more more flattish or in the same range as growth is what we have mentioned, in fact in our commentary also, we have mentioned, one minute — that the AEPS industry grew by 8% on year-on-year basis in quarter three 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 is the — 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 would be kind of repeat —

Shreya Shivani — CLSA — Analyst

Yeah, I got dropped off, so maybe I missed it. Yeah, okay, sure.

Rishi Gupta — Managing Director and Chief Executive Officer

That is there, but your question on the 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 productsmore or less remain the same.

On the 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 site. One thing which we have realized is that there is lot of compliance piece, which has to be stitched 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 on-boarding merchants on a monthly basis, how much we do every month now?

Ketan Merchant — Chief Financial Officer

We have already on-boarded 600 and 200 per month —

Rishi Gupta — Managing Director and Chief Executive Officer

So 200 — 600 we have on-boarded till now, another 200, we are in the — 200 is what we on-board every month now. So once the on-boarding 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.

Shreya Shivani — CLSA — Analyst

Got it, got it, sir. And any idea on why SBM Bank was restricted or —

Ketan Merchant — Chief Financial Officer

So, SBM is a different story. It was not to get into 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 that issue which is there, but that has nothing to do with our set of business.

Shreya Shivani — CLSA — Analyst

Okay, got it —

Ketan Merchant — Chief Financial Officer

That was a totally completely different unrelated thing. That is on the outside and this is coming in.

Rishi Gupta — Managing Director and Chief Executive Officer

Shreya, just to add that for us the international remittance is essentially the inward remittance which we’ll will be looking at.

Shreya Shivani — CLSA — Analyst

Yeah, yeah, correct, correct. Got it, this answers all my questions. Thank you.

Rishi Gupta — Managing Director and Chief Executive Officer

Thank you, Shreya.

Operator

Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.

Umang Shah — Kotak Mutual Fund — Analyst

Yeah, hi. Thanks for taking my question. 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?

Rishi Gupta — Managing Director and Chief Executive Officer

It varies between 60% to 65%.

Umang Shah — Kotak Mutual Fund — Analyst

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 four quarters perspective, how will the top line growth look like? And where I’m coming from is two-thirds of our business, which is BC banking, Micro ATM, remittances. On a combined basis, clearly, this segment is not growing now for past four, five quarters. A lot of thrust 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 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?

Ketan Merchant — Chief Financial Officer

Hi, Umang, Ketan here. I’ll again take the same stance, want to put a specific kind of guidance out here, 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 BMT 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, in is points keeps on saying that he has three-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 after your context is, he by no means is saying — he was just just saying that CASA and CMS, which is grown at a three-digit number on a YTD basis, it will not be three-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 that.

DMT — and we have to also realize the point which we mentioned earlier is, there’s the TAM part or the monetization part, there’ll be cross-sell, which has come, there are the new digital products, which we are essentially also putting it across. So from a overall perspective, in and around customer ownership, there are things which are being built-up. And as we see our acquisition pace 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 have to summarize your question on maybe around 66% of the transaction business, I would split it into two parts, one is DMT, which I have said earlier, in some form, we are trying to grow on that own channel, which will be at a relatively higher-margin. CASA CMS, I have clarified, you know, may not be a three-digit number or a high two-digit number, but there is a growth engine, which will continue. CASA renewal. I have already mentioned. And in addition, the new lines of 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 answered your question or not, but I have just given a perspective of what is our thought process in terms of growth and focus.

Umang Shah — Kotak Mutual Fund — Analyst

Sure, no, no. This is helpful. Ketan. Thanks. 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 period, for last three 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?

Ketan Merchant — Chief Financial Officer

Yes. 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 overheads, just operating overheads 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 PAT margin is what we are looking at.

I’d like to reiterate the point is, whilst profitability is the 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 nutshell, yes, operating leverage, it will continue.

Umang Shah — Kotak Mutual Fund — Analyst

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 SA deposits?

Ketan Merchant — Chief Financial Officer

I think we are at INR976 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.

Umang Shah — Kotak Mutual Fund — Analyst

You mean to say the spread that you are making is 300 to 350 basis points.

Ketan Merchant — Chief Financial Officer

Yes.

Umang Shah — Kotak Mutual Fund — Analyst

Okay, all right, thank you so much and wish you good luck.

Ketan Merchant — Chief Financial Officer

Thank you, Umang.

Operator

Thank you. The next question is from the line of Ashish from Infinity. Please go ahead.

Ashish Kumar — Infinity Alternatives — Analyst

Hi, thanks again for taking my question. Just one question in terms of — Ketan 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 — I see that that has gone up. So if I look at the PBT percentage, we are running at around 8%. Where do you — as you play this strategy out, where do you think it can go up to as some of the lower-margin businesses get out?

Ketan Merchant — Chief Financial Officer

I think 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. At current stage, whilst I do recognize what you’re saying is off, we are — see, I had mentioned in the last call as well, because we have a regulatory license because we have opportunity, which is coming in terms of using the repo and reverse repo line as well and where we can get a bit of spread coming across, intentionally, we have our borrowings coming through. If you look at borrowings, 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 major growth? To answer your point is, a treasury play or the borrowing on 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 non-core business or in terms of the balance sheet play as of now.

Ashish Kumar — Infinity Alternatives — Analyst

No, absolutely I agree. All I’m looking for Ketan is maybe data point from you that if you were to, let’s say, take the interest expense above the EBITDA line because it’s more an operating expense from some perspective. What will our — how will our margin movement look like? And where do you think that we can take it to, let’s say, two, three years’ time?

Ketan Merchant — Chief Financial Officer

Yeah, Ashish, we will incorporate that into our submission some time to come.

Ashish Kumar — Infinity Alternatives — Analyst

Sure, and maybe we can take this offline. Thanks a lot and wish you all the best.

Ketan Merchant — Chief Financial Officer

Thank you, Ashish.

Operator

Thank you. [Operator Instructions] The next question is from the line of Kamal Khatri from AMSL. Please go ahead.

Kamal Khatri — AMSL — Analyst

Congratulations fist of all for the highest profit quarter. I have two set of questions. In the last update, you have said you have INR700 crores of borrowings, 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 borrowings you have done in this quarter and what is the spread on that?

Second question is regarding the balances, you somewhere, had mentioned that your total savings accounts are 67 lakhs. And the [indecipherable] balance is around 1,100. So that’s total up to around INR750 crores. And in the overall balances around 976, so is there something else getting added there? These are the two set of questions.

Ketan Merchant — Chief Financial Officer

Yeah, 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 at the previous quarter, our total borrowings were INR743 crores, which has reduced by INR49 crores to INR694 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 INR694 crores, our investment is INR1,310 crores as as well.

What is the spread which we are getting on the borrowings? That is a bit — over the last three months, it is a bit differential. We have been getting anywhere between 70 basis-points to a 100 basis point spread, which we have come through.

On your second point, sorry. Kamal, you may have to just reiterate the question and I’ll answer it.

Rishi Gupta — Managing Director and Chief Executive Officer

No, no, I’ll answer. So in the second question, your question was in terms of INR900 and odd crores of deposits [indecipherable] comes to 700 crores. So the balance is merchant deposits, which we have, so total adds up to about 970-odd crore number — 976 crores. So you are right, it includes both the CASA as well as —

Kamal Khatri — AMSL — Analyst

Got it, got it. Thanks. I get my answers. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Krishna Hegde, an Individual Investor. Please go ahead.

Krishna Hegde — Individual Investor — Analyst

Hi, good evening. Thanks for taking my question. 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 any progress on that change in strategy. Love to get more color on that, please. Thank you.

Ketan Merchant — Chief Financial Officer

So, yeah, hi Krishna. I’ll take the first question of — and you’re absolutely right. Our equity and reserve is INR529 crores against this thing. Capital adequacy is largely not too relevant for us because we 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 INR300 crores and we have at that point of time also said that we are looking at, you know, making a digital and technology stack, 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 — and continue to invest, and 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 points. 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 primary capital.

On the second point —

Rishi Gupta — Managing Director and Chief Executive Officer

Second one, the partnership with Suryoday —

Ketan Merchant — Chief Financial Officer

We are currently going through a CUG, which is closed user group testing, we plan to go live by middle of February this month.

Krishna Hegde — Individual Investor — Analyst

Thank you so much.

Operator

Thank you. As this was the last question, I would now like to hand the conference over to the management for closing comments.

Rishi Gupta — Managing Director and Chief Executive Officer

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 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 three to six months also. So we are quite positive. While there are some concerns which were raised around Micro ATM an 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 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.

Ketan Merchant — Chief Financial Officer

Thank you, everyone.

Operator

[Operator Closing Remarks]