Fino Payments Bank IPO: All You Need To Know

Fino Payments Bank Ltd. is looking to sell shares at Rs 560-577 apiece in its three-day initial public offering that begins on Friday, in which it's looking to raise up to Rs 1,200 crore.

The company, which started operations in June 2017, is one of the two profitable payments banks active in India. Prior to becoming a payments bank, Fino offered remittance and other fund transfer services to unserved and underserved customers in the country.

The IPO comprises a fresh issue of equity shares worth Rs 300 crore. That apart, Fino Paytech, the holding company, which owns 7.8 crore equity shares—or 100% stake—in the payments bank will offer 1.56 crore shares in an offer for sale.

Marquee investors, including ICICI Bank Ltd., Blackstone Inc., Life Insurance Corp. of India, Intel Capital, International Finance Corporation, Bharat Petroleum Corp. Union Bank of India and Indian Bank, hold stakes in Fino Paytech.

Details

• Dates: Oct. 29 to Nov. 2.

• Price band: Rs 560-577 per share.

• Fresh issue: Rs 300 crore.

• Offer for sale: 1.56 crore shares (worth Rs 900 crore at upper band).

• Book running lead managers: Axis Capital, ICICI Securities, CLSA India and Nomura Financial.

Key Financials

For the year ended March, the payments bank reported a net profit of Rs 20.4 crore compared with a net loss of Rs 32 crore in the preceding year. That was aided by a 14.4% year-on-year rise in its total income to Rs 791 crore.

Expenses for Fino Payments Bank rose at a slower pace of 6.5% year-on-year to Rs 770 crore as of March. The metric stood at 67% in the preceding year.

The payments bank's capital adequacy ratio stood at 56.3% in FY21, compared with 61% in FY20. Payments banks tend to have high capital adequacy since they don't lend from their balance sheets.

Reserve Bank of India rules require that payments banks only offer payments and deposits as direct services. These banks can however offer credit and investment products through third party tie-ups.

As of March 2021, Fino Payments Bank had a deposit base of Rs 241 crore, more than double the Rs 116 crore in FY20. All the deposits came through its current account - savings account business.

While Fino Payments Bank had seen a rise in its deposit base, it still ranks fourth among peers. Paytm Payments Bank, with a deposit base of Rs 2,870 crore, was the largest.

Even when it comes to debit cards, Fino Payments Bank comes in second with a card base of 23.3 lakh and an annual transaction value of Rs 1,712 crore. In comparison, Paytm Payments Bank had a card base of 6.4 crore and recorded transactions worth Rs 8,453 crore last fiscal.

Where Will The Funds Be Used?

According to Rishi Gupta, managing director and chief executive officer of Fino Payments Bank, the IPO's proceeds would be used to develop its technology infrastructure, as it looks to expand into newer geographies and broaden the suit of services it offers. The public offering will also aid in bolstering its tier-1 capital ratio.

At present, the payments bank is present in 94% districts in India, Gupta said. The bank also wants to expand its network of over seven lakh merchants, as they become outlets for financial transactions through the micro automatic teller machines. Fino Payments Bank offers its remittance and payments services through these micro ATMs, which further adds to its fee income.

So far, the bank has been offering gold loans and merchants to its customers through tie-ups with banks and non-bank lenders. It also looks to enter the consumer credit business through similar partnerships.

On the investment side, the bank has applied for licenses to start offering mutual funds. It's also seeking permission to buy and sell gold on its digital platform.

Key Risks

There are certain risks which are specific to Fino Payments Bank, while others apply to the sector as a whole. These risks were detailed in its draft red herring prospectus.

• As Fino Payments Bank, like other payments banks in the industry, is dependent on technology platforms to continue providing services to its customers, any disruption or failure may cause business loss.

• Payments banks in India are subjected to stringent regulations and also need to undergo regulatory audits. Any adverse change in regulation or adverse observations by the regulator could hamper business.

• A significant portion of Fino Payments Bank's merchant network is concentrated in Uttar Pradesh, Bihar and Madhya Pradesh. As of March 2021, 45% of the merchants working with the bank came from these three states, contributing to 43% of its revenue. Any adverse changes in the conditions affecting these regions could hamper its business.

• There are two civil litigations involving Rs 2 crore and five tax matters involving Rs 3 crore pending against the bank. Promoters of the bank have four civil matters worth Rs 89 crore and 16 tax matters involving Rs 14.4 crore.

• HDFC Bank Ltd. filed a suit claiming Rs 1.86 crore in damages against Fino Paytech Ltd. and Fino Fintech Foundation. The private bank has alleged certain irregularities against Fino Payments Bank in its role as a business correspondent for HDFC Bank.

Watch Rishi Gupta, managing director and chief executive officer of Fino Payments Bank talk about the company and IPO.