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Innovation is a well-thought-out crucial chauffeur in todays viable markets for ensuring great success of the firms. This present study tried to find the effect of financial innovation on financial performance of the Indian banking sector. The mediating role of the research and development investment instability is also measured. Data for the study were obtained from working professionals employed in different scheduled banks of India in the Delhi – NCR region. CFA and structural equation modelling techniques were used for data analysis via SPSS and AMOS. Process Macro was also used for mediation analysis. The major findings of this research acknowledge that the different dimensions of financial innovation that are important for a banks financial performance are financial product innovation and financial process innovation. A direct noteworthy relationship exists between financial innovation and financial performance. In addition, there exists a partial mediation between research and development investment fluctuation, and financial innovation and financial performance. The real-world inference of this study is that selecting the suitable financial innovation forms can boost the banks financial performance.