Ladies and gentlemen, good day, and welcome to the Fusion Finance Limited Q3 and nine months FY 2026 post-results earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Smith from Adfactors PR. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining us on the Q3 nine M FY 2026 earnings conference call of Fusion Finance Limited. We have the company senior management team with us today on this call. Before we begin, I would like to remind that certain statements made in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Q3 and nine M FY 2026 investor presentation that has been uploaded on the stock exchanges and the company website. I now hand over the call to Mr. Sanjay Garyali, MD & CEO, Fusion Finance Limited, to begin the proceedings. Thank you, and over to you, sir.
Good morning, everyone, and thank you for joining us for Fusion Finance's Q3 and nine-month FY 2026 earnings call. As we begin the new calendar year, I wish you and your families a very happy and prosperous New Year. Before moving to performance, I would like to acknowledge two important leadership developments that significantly strengthen our platform for the next phase of growth. We recently appointed Mr. Krishan Gopal as CFO, effective January 17, 2026. Krishan brings over two decades of experience and adds strong financial leadership as we scale the business. At the board level, we have welcomed Mr. Brahmanand as an independent director, a veteran founder with deep operating expertise in MSME and rural financial ecosystems. His founder-led perspective and grassroot understanding of small enterprise lending will materially strengthen our strategic direction as we expand our MSME and semi-urban franchise.
I would also like to place on record our sincere appreciation for Amandeep Singh, who served as interim CFO during a particularly critical phase for the company. Q3 represents an important inflection point for Fusion. The business has now entered a phase of controlled stabilization and disciplined execution. I am pleased to share that we have returned to profitability this quarter, delivering a PAT of INR 14 crores. This was supported by broad-based improvements across asset quality, collections, credit cost, and disciplined disbursement growth. Importantly, our auditors have reviewed the company's financial position and confirmed that the earlier emphasis relating to going concern is no longer relevant, reflecting the strength and stability and resilience of the business. The quarter also marks our third consecutive period of improvement in asset quality, collections, and credit cost. Importantly, this progress has been achieved without relaxing underwriting guardrails, reinforcing the durability of our recovery.
Let me begin with disbursements. Q3 disbursements stood at INR 1,594 crore, up from INR 1,298 crore in the previous quarter. This growth was driven by two focused initiatives. First, reducing operational friction for our front-end teams, and second, leveraging a pre-approved base of high-quality clients where approval rates are significantly stronger. Approximately 30% of our new disbursements now come from this pre-approved base, with approval rates close to 50%. As we highlighted last quarter, our credit framework is increasingly anchored at the branch and district level. Our top-performing branches, categorized as A and B, demonstrate significantly lower portfolio stress and superior collection efficiency. These branches account for 82% of our network and contribute 91% of fresh disbursements. Our credit guardrails remain stronger than industry standards and extend beyond traditional bureau-based assessments.
We are also seeing a strong traction on the MSME portfolio, particularly in the 7 lakh to 15 lakh ticket size segment. While this is an evolving journey, we have built scalable processes and tools that position this business for meaningful growth. Momentum in disbursements in both MFI and MSME has continued into January, where we have already crossed INR 670 crore between more than 100,000 customers. For the past three months, new additions have hence exceeded repayments, setting the stage for sustained book growth. Turning to our most important metric, current bucket collection efficiency. Through continued emphasis on ground-level discipline and strong guardrails, collection efficiency now stands at 99.4% in December and 99.7% within that on the new book, which currently represents 80% of the portfolio. We are also seeing strong discipline in center meetings reflected in improving collection behavior.
Approximately 94% of collections are realized on the same day, most of it from the center meetings, with a further 4% collected within the same week and the balance 1.5% within the same month. We have also seen a sharp reduction in borrower leverage, with clients having exposure to more than three lenders now drastically reduced to 7% of payoffs, down from earlier levels of 16%-17%. Our net flow forward rate in the current bucket stands at 0.25%, translating to an effective collections efficiency of 99.75%. This performance gives us confidence that credit costs in a stable state are expected to normalize in the range of 3.25%-3.75%. On recoveries, our in-house collection team continue to deliver improving results. We are currently averaging over INR 12 crore per month of 60-plus DPD recoveries in cash, with approximately over 85% driven by internal teams.
We continue to invest in strengthening this capability and are targeting INR 50 crore in quarterly recoveries. On the technology front, we are pleased to share that most of the work related to our enhanced LMS and LOS platforms is complete. We expect to begin UAT in the coming weeks, with phased implementation targeted for completion by May this year. These upgrades will modernize legacy processes, improve front-end execution, and provide real-time visibility into operational gaps. Finally, a brief word on our people who remain the foundation of our execution. The branch manager role, core to our JLG processes and field culture, has stabilized meaningfully with annual attrition at around 30% and firmly under control. Over 75% of our branch managers now have more than three years of vintage. This deep experience at the frontline is critical to sustaining operational discipline and consistent execution.
Looking ahead to FY 2027, we have outlined a detailed roadmap to cross INR 10,000 crore in AUM. We are confident that on the stable book, the credit cost will be in the range of 3.25%-3.75%, and we will continue to optimize the operating expenses. With a strengthened leadership team and solid capital backing, we are confident in delivering on this plan. With that, I would like to hand over the call to Mr. Krishan Gopal for his introductory analyst call and take you through the financial performance in greater detail.
Thank you, Sanjay, and good morning, everyone. As this is my first earnings call with Fusion, I would like to briefly say that I am pleased to be addressing you all this morning. Over the past few days, I worked closely with the management team to ensure continuity in the execution and financial discipline, and I am encouraged by the strength of the people, balance sheet, and the progress made by Fusion across key financial matrices. I now take you through our financial performance for quarter three and nine months of financial year 2026. Starting with our capitals and liquidity position, the liquidity remained comfortable at about INR 1,783 crore as of December, and our capital adequacy stood at 38.8%, providing adequate headroom for regulatory requirements. In addition to the liquidity of INR 783 crore, company has sanctions in hand of INR 1,825 crore, which we can draw at any point of time.
The first and final call of the rights issue received a robust response, and we got INR 390 crore subscription. That is approximately 99% from the issue size of INR 400 crore. Fusion is indebted to its lenders for their continued supports towards liquidity supply and supports extended to the company during the recent times with the challenges around the going concern and covenant breaches. We are glad to share that the support has continued and going concern challenge is behind the company now. The company has significantly strengthened its funding profile through diversified borrowings across banks, financial institutions, and development-focused lenders, reducing concentration risk and enhancing funding resilience.
During the quarter, we raised INR 2,127 crore, comprising term loans of INR 1,347 crore, direct assignment transactions of INR 434 crore, NCDs of INR 310 crore, and PTCs of INR 37 crore, totaling the total debt raised in the first nine months till December 2025 to INR 3,940 crore from our lenders. This ongoing confidence is reflected not only in waiver pools, but also in fresh credit lines extended to us, underscoring the resilience and credibility of our company within the financial ecosystem. Importantly, several banks have freshly opened up to Fusion, and lenders who were earlier in wait-and-watch mode have now started to actively re-engage with Fusion, underscoring the improving lender sentiment towards the company. This expanding lending universe, combined with healthy liquidity and sustained profitability, positions us well to support our growth plans in a prudent manner.
During my early interactions with our lending partners, it is clear that relationships remain strong and constructive. Waiver coverage for covenant-related matters has improved further, with approximately 97% coverage achieved as of date, reflecting continued lender confidence. This confidence is also visible in the continued availability of funding lines and renewed credit limits, reinforcing Fusion's credibility within the financial ecosystem. Moving to funding and margin performance, our average cost of funds remained broadly stable at 10.3%, while marginal cost of funds moderated to 11.8%. Net interest margin for the quarter stood at 11.3%, supported by a favorable portfolio mix, improving asset quality and lower income reversals from Stage 3 assets. Going forward, we are confident that with the diversity of sanctions in hand and availability of liquidity and profitability, we would be anticipating our marginal cost of borrowing to continue to improve from current levels.
We expect that our credit rating agencies shall take cognizance of the developments at Fusion, reflecting the strengthening of our funding mix, lender confidence, and overall financial profile. Turning to the expected credit loss and asset quality, the company has maintained a strong emphasis on portfolio hygiene and conservative provisioning. Asset quality matrices improved further during the quarter, with gross NPA declining to 4.38% and net NPA remaining contained at 0.60%, with write-off recovery at INR 14 crores and net credit loss impact to the PNL for Q3 stood at INR 65 crores, equaling to 1% of the average on-book loans. ECL provisions as of December stood at INR 353 crores compared to INR 440 crores in the previous quarter.
Stage 3 coverage remains strong at 86%, while combined Stage 2 and Stage 3 coverage stood at approximately 80%, reflecting a prudent approach to recoverability and focus on minimizing PNL volatility. During the quarter, there was a write-off impact of INR 170 crores on the portfolio, and we released INR 15 crores of management overlay based on the management analysis, including asset quality matrices, the reduction in delinquency and the conservative provisioning approach under ECL, supported by higher provisioning coverage across stages. On operating performance, the focus on cost discipline and productivity improvements continues. The cost-to-income ratio for the quarter stood at 69%, while overall operating costs were nearly flat quarter-on-quarter. Any sequential movement in operating cost ratios is largely attributable to portfolio normalization and is expected to stabilize as growth resumes.
Despite a calibrated approach to the balance sheet expansion, pre-provisioning operating profit for the quarter stood at INR 94 crores, demonstrating the underlying earnings strengths of the franchise and the benefits of operating efficiencies. During the quarter, there was also a one-time charge to the PNL towards the new labour code, which resulted into an impact of INR 6.91 crores. Excluding that, the PPOP would have been about INR 100 crores and the profitability would have been above INR 20 crores. To conclude, Q3 and nine months FY 2026 mark a period of continued strengthening of Fusion's financial profile, characterized by the stable margins, strong provision coverage and healthy liquidity. As I take on this role, my focus will remain on sustaining financial discipline, strengthening lender relationships, and supporting calibrated well-guided growth. With improving asset quality and robust capital buffers, we are well-positioned to deliver steady progress in the coming quarters. Thank you. Thanks, everyone.
We can now open the session for the Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Yeah, hi, good morning. Congrats on good performance. Sir, while you have already communicated January's disbursement numbers, can you also talk about the net flow forward trend in January and so far, how it is shaping up in February? Also, if you can share the first bucket, 1 to 30 DPD bucket as of September and December.
Yes, Rajiv. Sure. On disbursements, we have explained that the disbursement trend continues, and this is despite stronger guardrails. On the flow rates, I can't tell you exact numbers because we don't publish like that. We give you only quarterly numbers. But I can give you a confirmation that January is better than the quarter 3 flow forward rate on the X bucket, net flow forward rate on the X bucket. Yep.
Okay.
This is very secular. This is across states, and there is no particular state, and we also share state-level collection efficiency. This is across state. There is no state where we see any dip. The second is on the first bucket is approximately, what we ended total is about INR 48 crores, is what the first bucket is.
That would have come down, right, from September?
Yeah, that's come down by about INR 15 crores from September.
Okay.
Yeah, that's come down from actually about over INR 75 crores from September.
Correct.
To give you an exact number, September end one to 30 was close to about INR 87 crores, and now it is INR 44 crores.
Oh, great. Yeah. Okay. And sir, when you talk about this pre-approved eligibility and then that is how you approach growth and which is also helping you said that pool of customer wherein you have figured out there is a pre-approved, you can do some pre-approval-based lending. How exactly you approach a customer? I mean, this is all group, right? Nothing is individual when you talk about pre-approved opportunity in a certain client base.
Okay. I think the question that you are asking is that how are we utilizing the pre-approved base?
Yeah, you said that 30% of this was paid for Q3. Yeah.
Just let me explain to you. The pre-approval happens at an individual level. It happens within the group, but not every customer would I pre-approve.
Correct
My average center meeting size is, let's say, seven, and five of those customers are, let's say, eligible for the next stage. Not everybody would I pre-approve. I am pre-approving on a certain base of customers, where I see the propensity of taking that to be very high, and in the pre-approved base, I am keeping the leverage even lower than what my guardrails are. Essentially, what I am directing my sales team or the front-end teams to focus on this because our data says that the approval rates and the behavior and the power of the pre-approved base is far better than even rest of the customers that we are acquiring.
The pre-approved base essentially operates at an individual level, but it addresses the group. The customer is not acquired as an individual customer. There will be more
A part of the group.
group.
Yeah.
In a pre-approved, there will be at least two customers in the group, which I will give a repeat loan to for that center meeting to be eligible.
Okay. So would you introduce another loan, or you would enlarge the size of the loan if he is eligible for a larger amount of loan as per your analysis? When do you do that with that customer? Or you wait for the cycle to get over and then you offer him a larger loan?
Correct. We do not have two loans for the same customer in the system. We just have one loan for one customer in the system.
Okay
While the normal cycle is after 14 months, the pre-approved is after 19 months. So the vintage of the customer with us is much higher.
Got it.
The customer who has had a vintage of 19 months with us, you know all our guardrails. One of the critical guardrails is that the customer should not be delinquent currently.
Whatever bucket, the customer should not be delinquent currently. We do not fund delinquent customers, even in the first bucket, whether of competition or Fusion Finance. To qualify for a pre-approved base, the customer has to be 19 months of vintage versus 14 months, which is our normal guardrail.
Okay, sir. Thank you. Best of luck.
Thank you. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity, and I would say congrats for now finally the first quarter of profits after this entire stress. Sanjay, a few questions for you. One is with regards to, first of all, the profitability itself. Now that we have turned a profit, do you intend to recognize the DTA in Q4? And if my calculations are right, what would be that quantum? Would it be roughly around INR 400, INR 450 crores in Q4?
Is that your only question, Viral? Or is there a second?
No, I have couple of. Yeah.
If you can put down all your questions, I will answer them together.
Sure, Sanjay. My second question was just clarificatory with regards to the current collection efficiency. I think on the executive summary, the number is a bit different from on page 17. Is it a change in the methodology that we have done in this quarter? If you can just touch base on that, what is that change? Thirdly, basically, wanted to understand how has this net forward flow rate, there is a sharp decline from 60 basis points to 25 basis points from 2Q to 3Q. If you can just help us understand this reduction basis the forward flow rates that you have given across buckets. Because I see an improvement, of course, in the first bucket, but the second and third bucket, largely the forward flow rates seem to be stable. Probably could be a function of the net write-back, but that will be helpful to understand.
Okay, sure. Viral Shah, first starting with the DTA. See, the overall quantum of DTA is close to about between INR 380 crores- INR 400 crores. You understand that DTA is not necessarily an operating profit. We are not very pushy about when to claim that DTA. We will let it happen in the due course. I am not pushing whether we will do it in Q4 or next year, or we will do it in a staggered manner. We are also not focusing on it. But just to give you a quantum, that is close to about between INR 380 crores- INR 400 crores. That is one.
Sanjay, just on that piece. The only reason is that a lot of lenders would typically look at an annual financial, and it just helps your balance sheet matrices much better from a ratings sample. That was just the only thought process behind this.
I completely agree with you. I understand that. We give a monthly update to all our lenders on the complete PNL, including our collection efficiencies and matrices. If you see, that is where the confidence is coming from. There are some PSUs also which have opened their wallets for us in the last quarter. However, we do not want to be pushing this because of this reason. If it happens in due course, that is fine. We will not push the DTA. Yes, we are evaluating that. I will not say anything further on this. On the collection efficiencies, the figure that you see in the executive summary is 99.14, which is at a pause level. This is average for the quarter three. What you see is 99.41 in December. That is 99.41 for the month of December.
That is like quarter ending. The difference between previous and now on collection efficiency, what we have done is we have put it on pause because that is a meaningful way. That is how the market does it. However, in the annexure, we have also put on numbers. In case you want to refer to the previous, that is also there in the annexure. That is the difference between the two. On the net flow rates, there are two areas where we have seen improvements. On the first bucket, which is 1- 30, when we were evaluating ourselves against competition, our flow rates were close to about 35%- 40%. We were much better against the industry on this. We were doing a better job on the 1- 30. We realized that where we need to do better is on the gross collection efficiency.
There is a lot of focus that we have put on the center meeting discipline. The same-day collections, like I have told you, 94% of our entire collections is happening on the day of the demand. Essentially, the flowback is more or less the same as before. The gross flow forward rates have drastically come down because of which the net flow rates are far better. On the second and third buckets, if you see, there is an improvement on each of the buckets over the previous quarter on second and third buckets as well. I will just give you on the graph, if you see, there is 5%- 7% improvement on each of the Just give me a minute, Viral.
If you see the collection efficiencies or the flow forward rates in November and December in the 30- 60, now we are in the range of 65 and 57 for December. This was averaging about 70 in the previous months, if you can refer to slide number 13. 60- 90 has remained more or less the same because we think that by 60- 90, I think we have juiced out everything from the customer. 1- 30 and 30- 60 is where you see improving trends over the previous quarter by at least 5%- 7%.
Got it. This is very helpful, Sanjay.
I hope this answers your queries.
Yes, it does. Thank you so much, and all the best.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one now. Participants who wish to ask a question may press star and one this time. Thank you. The next question is from the line of Ashlesh from Kotak Securities. Please go ahead.
Hi, sir. Good morning. Two questions from my side. Firstly, if I look at this net forward flow rate number for 3Q, which was at 25 basis points, where do you eventually expect this number to end up, let's say when most of the bad loans have been cleaned up? That is one. Secondly, if you can share what is the outstanding pool of bad loans which were written off over the past couple of years in this cycle, and how much recovery do you eventually expect from that pool?
Okay. Yeah. Thanks, Ashlesh. First, on the net forward flow, this has nothing to do with the bad book. This is only the net flow rate is on the current book, as we all understand. The biggest change that has happened is that the leverage on the current book has drastically come down. You are seeing that greater than three lenders on the overall book is close to about 7% or less than 7%, greater than three lenders. So one, this has distinctly come down, and this will help us get better and better on even the current bucket collection efficiency. For January, I have already told you that we are better than what the average that you see for the quarter.
Now, I think the way I am looking at it is that even if we continue at about 0.25% of net forward flow and assuming everything else flows forward. So in a stable state, the way we should look at it is 0.25% translates into approximately annualized credit cost of about 3%, and another 25% and 80%-90% of whatever flows forward will eventually flow into 90%+ . So take about 85% of that. That is about 2.65%. So 2.65% is a credit cost that should be there in decent times and about 50 to 60 basis points when there is a tough scenario. So that's where I said that, which is about 3.3.4. That's why I said that the credit cost will range between 3.25%- 3.75% in a stable book, on a stable environment. I hope this answers-
Understood, sir.
Very good.
Yeah. Sorry. Second one was a different one. The outstanding pool of bad loans.
The outstanding on the total write-off is close to about INR 3,000 crores. I have explained in the previous calls. We have done a bureau run and we have done multiple propensity checks. About INR 800 crores- INR 900 crores is what we see recoverable, which means that these are the customers where there are some or the other transactions happening in the bureau, or we see some trade lines which gives us a positive sense. We are expecting about INR 50 crores of recovery in the entire INR 60+ crores. Why I am saying INR 60+ crores is because most of the provisioning, in our case, happens in INR 60+ crores itself. I am looking at about INR 50 crores every quarter.
Over the next four quarters, I am looking at approximately INR 200 crores of cash collection, which will come from the entire INR 60+ crores , of which about 90% will come from INR 90+ crores , which will be divided between 90- 180 and the write-off. You can assume that from this quarter, which is quarter four onwards, for the next one year, we are targeting close to about INR 200 crores of recoveries in the entire INR 60+ crores .
Understood, sir. Sir, just lastly, and just for opening remarks today, if you have given the guidance for loan growth for next year.
Yes.
Thank you.
Yeah, which I have already given. You want me to repeat that?
No, sir. Please.
Okay. Thank you so much. Thanks, Ashlesh.
Thank you. The next question is from the line of Sohail Kanalil from ULJK Financial Services. Please go ahead.
Yes, sir. Congratulations on a good set of numbers. I had a couple of questions. First one being, what is the attrition rate in this quarter among the field officers? The second question was, how many of the customers of Fusion Finance still have more than new lenders as of Q3?
Sorry, Sohail, the second one was greater than Fusion plus 3?
Yes.
I've answered the second one, but I'll repeat again. The first one, first I'll address the attrition. I have given you attrition figures at a branch manager level are close to about annualized 30%. 75% of branch managers are greater than three years. The question you are asking is field officers. The way we measure is field officers greater than six months is close to about a little around 50%. It's just little less than 50% and greater than six months, which is how we measure because a lot of people less than six months are trainees and the book allocation doesn't happen. On the Fusion plus three, I've explained to you that at a pause level now we are sub 7%. You remember we used to be hovering around 17%-18%, now we are at 7%.
7% of the entire book at a pause level is greater than Fusion plus two.
Okay, sir. Got it. Thank you.
The new disbursement that we are doing, we have shared with you about 80% is just Fusion and Fusion plus one, not even Fusion plus two. That is also important to keep in mind.
Understood. That's very useful, sir. Thank you very much.
Thank you. The next question is from the line of Maitri from Sapphire Capital. Please go ahead.
Yeah. Hello, good morning. Hello?
Yes, Maitri. We can hear you.
Hello.
Yeah.
Could you repeat the disbursement number that we mentioned for January?
Sorry, Maitri, your voice is broken. Did you say disbursement numbers?
Yeah. For January.
For January.
Of course.
Yeah. Any other question you have? I will answer them collectively.
Yeah. For 27% AUM, any ROA, ROE targets, do we have for next year?
Okay. I think the second question you are asking is that against that AUM, do we have an ROA, ROE target? Is that what your question is?
Yes.
Okay. Is that all? Can I start?
Yes.
Okay. Jan disbursement numbers are a little over INR 670 crores for Jan, which has come from over 100,000 customers, I think approximately 110,000 customers. In MFI, 80% of these customers that we have acquired, 76% of these customers at a pause level are our existing customers and 24% are new. On the ROA, ROE, you see, we do not give exact guidance on ROA, ROE. But I have given you our names. You can clearly figure out what is the We have shared with you our margin analysis. You know the income streams that we have. We have given you a sense of credit cost to look at in a stable environment, 3.25%- 3.75%. The only metric that you would want is OPEX. I can tell you confidently that OPEX at a percentage level will significantly keep coming down.
The call that we have taken is that 85% of our OPEX is people. In a falling book, it did not make sense to cut down on people and then we would again require people later on. The call that we took was that how do we utilize our existing people into more productive areas? One of them being collections. We have a INR 3,000 crore written off book. There is a significant number of people we have put behind collections, at least for the next one year. The compensation of, let us say, a little higher OPEX against, let us say, a normal OPEX that you would want to see is about 5%- 6%. We will obviously be higher than that. That will be, to some extent, compensated by the recoveries that we get in the 90+ or the write-off pool, at least for the next one year.
Thank you so much.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah, hi. Thanks for giving me the opportunity for the follow-up. Sanjay, with regards to your collections and the write-off that you mentioned. You mentioned that INR 50 crore of recovery per quarter, this is on the 60+ portfolio. I am sure part of this is basically your normal, I would say, the recovery of an overdue book, roll back, all those things that happen. Out of this INR 50 crore, what is the exact, I would say, or not exact, I would say, but more likely proportion of recovery from the write-off portfolio of INR 3,000 crore? If you can help us with that. Secondly, also with regards to your credit cost guidance of, say, 3.25%- 3.75%, does this kind of take into account, say, the use of the residual management overlay of around INR 30 crore? Given we have used another INR 15 crore this quarter as well.
The second question, I will let Krishan take on. I will just answer your first one. On the INR 50 crore break-up, like I already explained, while this is 60+, 90% of it, which is approximately INR 45 crore will be 90+, which is 100% provisioned. Right now of these INR 45 crore, right now about INR 13 crore we are averaging from the write back for the quarter, which we will be taking to close to about INR 18 crore to INR 20 crore. So of INR 45 crore, about INR 20 crore for the quarter will be write back and the balance INR 20 crore, INR 25 crore will be 90 to 180 recoveries. For the second question-
Got it.
I will pass on to Krishan.
Hi, Viral.
Hi, Krishan.
On the credit cost, irrespective of management overlay reversal, there is an improvement, and that should continue. As far as utilization of that management overlay is concerned, that is based on the improved flow rates and asset quality. As we have communicated earlier, there is a plan to utilize some bit of it every quarter. However, every quarter we take an assessment of this and we will take a call. However, our stand is we should utilize it over next one or two quarters gradually, the way we have utilized in last two quarters. Having said so, there is a clear-cut improvement in the credit cost removing the management overlay, and that should continue in the next quarters as well.
Got it. Thank you.
Thank you. The next question is from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Yeah, hi. Thank you for allowing a follow-up. Now, Sanjay sir, when you talk about doing a INR 10,000-plus crore book in the next year, it is a big jump in terms of where we are right now. From a funding point of view, how confident are we of funding this kind of growth? If you can also talk about now at what cost. Your marginal cost of funds is running pretty high, and it has to come down now. So where do we see our cost of funds broadly stabilizing as we get the benefit of coming back in terms of the overall P&L?
Rajiv, I'll just partially answer your first question and the financial aspect of it I'll leave to Krishan. See, while technically, let's say we end this year at about INR 7,200 crore, INR 7,300 crore, and you're looking at it, let's say, from a INR 7,000- INR 10,200, that's close to about 40% growth. I'm saying we should not look at it like that because this is something that the current infrastructure anyway supports. If you look at our customer base of over 25 lakh customers, 1,600 branches, 1,450 MFI branches. Technically, we should be just MFI. We should be about INR 12,000 crore of AUM, just MFI. So with the branches that we have, maybe we need to just add people at a front end, nothing else. We should be at about INR 12,000 crore of AUM only on the MFI book.
I think while you see it as growth, I look at it like reinstating or utilizing the existing infrastructure because we have not let a lot of people go, we have not caused any huge anxiety amongst people. Hence, I realize maybe in hindsight, while we were being internal also we were anxious of the fact that we are carrying a high OPEX. I think in hindsight, we did the right thing because, for example, you see two quarters back, we were averaging INR 250 crores. I'm telling you, we are at INR 670. That's two and a half times, but we are not feeling like that. The pressure is not like we have gone up two and a half times because it's just the people were there, the muscle memory, the way people were operating. And we let people be there, and I think that's worked in our favor.
However, you will see a significant build-up on the MSME side. The book that you see about INR 700 crores, about 15% of this INR 10,000 crore will be MSME, which means that the MSME will be almost double. This is where we are creating a right to win, and we are into completely secured. We are only into self-occupied residential and commercial. And we are very confident that we will be able to offer at a lower credit cost a right to win, which will differentiate us from the market. So 15%, like I said, of the INR 10,000 crore will be the MSME AUM. The rest of the I'll just let Krishan do the
On the capital front, as you can see, our leverage stands at 2.2x and capital adequacy touching about 39%. And this 2.2x is on the back of extra liquidity of about INR 1,800 crore. So this number should continue till March when we come to the normal level of liquidity. So these two matrices clearly show that we have a good headroom of growth. The number we talked about the next year and the one more year. And this is based on the current levels, and I'm not even talking about DTA. Someone touched upon DTA. So that is also now we are profitable, and this is just a matter of time.
So that says we have enough capital for growth without that DTA as well and when DTA comes, there is a straight addition of about INR 400 crore, and as I said, that is just a matter of time. We are not worried on that front. As we mentioned on the debt side, we are already getting sanctions. We have liquidity of INR 1,800 crore, sanctions in hand of about INR 1,825 crore. So the focus is on the business and the growth, and we are getting good support from the lenders. Plus, as I mentioned, we have a good headroom. Our leverages have very good headroom plus capital adequacy as well.
Just one last thing I want to check on was that the government-sponsored Credit Guarantee Scheme, which was supposed to come. Any thoughts? Is that coming? Signs or something on that?
See, conceptually, we have agreed that Alok, who is the CEO of MFIN, he is representing us and he is chairing that. So anything pertaining to that, I think I would deem it fit and proper for him to do the talking. But obviously, if it comes, it is great for the industry in what, when. I think he is the spokesperson for the industry, and he should do the talking on this.
Sure, sir. Thank you.
Thank you. The next question is from the line of Sonal from Prescient Capital. Please go ahead.
Hi, sir. This is Sonal Minhas. I wrote on Motilal.
Yes, Sonal.
Yes, sir. You were talking about recoveries of the order of INR 200 crores before saving future. As I see slide 25, I think the recovery rates are much lower than that on a quarterly basis as we see right now. Am I reading the data right? Just want to understand the numbers first and how that is going to be enabled going further to meet those numbers. Just wanted to understand that.
Okay, great. There are two part of recovery. Like I said, INR 50 crore is the total 60+ , and I gave a break-up of that INR 50 crore, about INR 5 crore is 60+ , and the balance INR 45 crore is 90- 180, and the balance is about INR 20 crore is write-off. The write-off that let's say I am positioning right now. This total number that you see right now against INR 50 crore is about INR 36, INR 37 crore. Right?
Between this, the write-off is INR 13 crore for the quarter, which I am positioning at INR 20 crore. There are certain changes that we have done on how there are some experiments that we were doing in certain set of branches, and we have been extremely successful, and the results have been encouraging.
Yes.
There are some technology changes we have done. We have taken advantage of propensity. There are some AI calling that we have done because reaching out to, you would understand, this is 10, 12 lakh customers, so reaching out to them would have been very expensive.
Mm-hmm. More possible, yes.
Yeah. There are multiple. We have also taken help of AI and actually, we were amazed. We were thinking that the rural customers' response to AI would be weaker as compared to urban. We were pleasantly surprised and all of us have listened to a lot of those calls. I think if we choose the right partner and if we do this right, there is a significant upside that we can get rather than burning money on hiring people on contact center and warm bodies. That is one of the reasons why the overall cost of collections, even in the write-off, has been hovering around 20%. Otherwise in the market, it is close to about 35%-40%. This is what our sense is that the INR 50 crore breakup will come from.
If I were to give you the January number against this 50, we are very close to, let us say, we are about INR 12 crore-INR 14 crore in Jan. My previous average was INR 11 crore.
Got it.
Basis that also, we are getting confidence that this will be, I am not saying a cakewalk, but INR 50 crore, we should be able to target in about one and a half quarters' time. This is the average per quarter for the next four quarters, so that we will be at INR 50 crore. That I am pretty confident on.
Got it. Thanks for explaining this. Sir, going further from a prudence perspective and in microfinance, the up and down cycles are there every two, three years. Just want to understand, there is Fredag, which has early provisioning policies. Just taking them as example, but there may other more who basically more conservative in terms of provisioning much ahead of time compared to peers in the market. How should we see Fusion going further, going ahead from a two, three-year perspective? Is there enough buffer you want to create in provisions from the profit pool so that whenever the next down cycle comes, you are ready and that secures the institution for the next cycle as well from a down cycle? Just want to understand from a risk perspective how things are going to be different for Fusion, not from a regulatory perspective.
Yeah. I think a very apt question. From a risk perspective, the way we are looking at it is that there are two ways of managing, let us say, a tough situation or a market or a cycle.
Is that during the good times, you take lesser risk. You build your guardrails much stronger.
Sure.
All this challenge happens because of the fringe customers or customers-
who are on the bench, and those are the customers who move to, let's say, a delinquency during the bad time. One is that guardrails have to be much tougher. We have already explained that our guardrails are at least 2- 3 times tougher than what the industry guardrails are. We are not using just simple bureau as a baseline. That is one. The second thing, if you look at our ECL model, it is extremely aggressive. In fact,
most of the analysts have come back and said that you are over-provisioning. We did not want to change all this during the year, so you are absolutely right.
I think should we between provisioning and ECL, let's say, creating fresh management overlay and provisioning, should we be creating a buffer? Absolutely, what you are saying is right. But both the things cannot happen at the same time. We cannot take a very high ECL and then also provision and create a management overlay.
We have taken a very aggressive provisioning, and this was because we had a very tough time last year. We did not want to change it during the year, but I think as a team, we will sit down. There are two people who are working on the ECL model. There is an external consultancy also we have hired, who gives us a very fair and an unbiased view. We will, I think at the beginning of the year, look at both whether we need to build more management overlay or we need to make the ECL provisioning a little more fairer. But you are absolutely right.
Got it.
We will take this call in Q1, the moment we are done with Q4. Vishal?
Sir, just want to ask on this, how do you tie this with growth? Because you have given a growth guidance which is fairly aggressive. So basically, just want to understand from a growth cum the risk perspective, is that growth something which you feel is reasonable enough for the risk that you want to play with?
Okay, great. So I think let's break this down. Where is the growth coming from? One, we are saying that the MSME book will almost double. Currently 720 will go to 1,500.
INR 1,500, yes.
Is that a risk? Obviously, the risk is much lesser. Why it is lesser? Because it is completely secured. The LTVs are far protected. Our book LTVs are close to 55%. We are very clear on what kind of properties and what kind of risks we will take. We are not taking any cash flow risk there. The only risk that we are taking is on marketable properties. So INR 1,500 crore of book, let's say INR 700- INR 1,500 crore will be a far less risky book. The second part is that MFI going from, let's say INR 6,500 or INR 6,400- INR 8,600. Like I said, we should not see this as real growth because we did not cut down on branches, we did not cut down on people. I will just give you a number.
We did INR 670 crore out of which about INR 35 crore is MSME, INR 630 crore is MFI.
Sure.
Now the question that you have to ask is that for next year if I have to do, let's say, INR 8,000 crore of disbursement from MFI, INR 650 crore my this month number or INR 630 crore will take me to INR 7,500 crore. Do you think going from this number to, let's say, INR 720 crore average for next year, is it really growth? Is it an aggressive growth?
Okay.
Maybe it is sounding growth to you because the first quarter was really down. We were less than INR 1,000 crore disbursement. There was a huge runoff because of the book quality or the previous book that we had acquired. That is why you saw the book deterioration happening very quickly.
Got it, sir. Thanks for explaining, sir. I will fall back into queue. Thank you.
Thank you. The next question is from the line of Abhijit from Motilal Oswal. Please go ahead.
Good morning, sir. Thank you for taking the question. Sir, please let me know if these questions have been answered. First thing is, today we are seeing an increasing propensity of the MFI lenders to go for CGFMU only. Our thoughts around that, is there a portion of our portfolio which is guaranteed under CGFMU only? If yes, what is the proportion? If not, how are we thinking about it? The other thing is, incrementally, we have seen MFIs talking about taking some hike in lending rates. What are our thoughts there? Lastly, sir, today when you meet MFIs, we see a subtle acknowledgement that in MFI, fine, the group lending will continue. Basically in JLG, the group bit will continue, but joint liability is something people do not sound very confident about going forward.
If you could just share your brief thoughts on these three questions.
Okay, great. Credit guarantee, we are evaluating, but we have not yet enrolled. None of our book is right now on a credit guarantee as and when we close that, but we are evaluating it, so as and when we close, we will come back to you. On the lending rates, you are right, I think most of the industry has increased lending rates by 100 to 125 basis points. We have not increased lending rates in the last one quarter. We are evaluating the situation and our audit. There is a pricing committee which clearly has put about 75 to 100 bps, which is a window available for us to increase. The decision is on the table, not taken yet.
There is a play of about 75 to 100 bps on the interest rate, which is available to us if we compare against, let us say, whatever the industry or the market is. When do we do this? We are evaluating this. The decision is on the table. I think there are one or two more external things that we are looking at, basis which we will eventually take a call. But yeah, we will take a call by end of this quarter. On the JLG, I think the group never had a liability. However, if you look at it, there was a nudge by the rest of the lenders, and they would support her. Let us say any one person in the group, you would support her.
I think the thing that we are observing is that depending upon how we acquire the group, the group will stay together versus not stay together. So let us say, the center members, how close are they to each other from where the center meeting is happening? So we have kept a certain distance of less than a particular distance from the center meeting. Are we getting homogeneous customers on board? In a center, are there customers with very different leverage backgrounds? How is the entire center being looked at? Is there some reward the center is getting for, let us say, a center attendance discipline? There are multiple things that we are working on, and I think it is getting complex and complex. But I do not see, and when I talk to some of my peers, mid and large both, they also see significant value in the JLG concept continuing.
But I think with the use of technology, I explained to you that our entire LOS and LMS, we are upgrading to a very modern system. It will be operational by May of this year. I think that will support a lot of JLG, which is right now too much of dependence on the front end. That heavy lifting that the front end person has to do, that will move on to technology and system. I think we will be able to give you a clearer picture on this by end of the quarter. We are already undergoing implementation in a certain set of branches. I think we will be ready with progress when we talk about in the next quarter.
Got it, sir. Then just one last follow-up. When we look at this thing that you put out on the slide, the level, the book composition, what is unique to Fusion plus one, Fusion plus two. Do you think given that the propensity for you as well as the industry now is to come out with pre-approved loans, try to see that if you have a good borrower, you try to take care of most of her borrowing needs. Do you think this proportion of unique to Fusion and Fusion plus one going up in the coming quarters?
I think unique to Fusion will definitely continue to grow. So right now we are at about over 40% unique to Fusion. There are a lot of initiatives we have launched around this customer. You are absolutely right. I think this is very similar to any other NBFC or bank that you look at. There is a certain loyalty around existing customers, anybody who is, let's say, catering to just one customer. I think the only thing that we have to be aware that there can be an over-leverage on getting, let's say, lending too much to your own customer also. So there is a challenge, and hence the selection criteria is very critical. But you are absolutely right, I think. And we are working around how we can use technology to give more value add to this customer.
Because if she is relying only on Fusion and let's say, the criteria that we set are similar to Fusion plus one and Fusion plus two, then we are doing a gross injustice to her and not giving her enough reason to continue to stick to only Fusion. However, if we take the entire risk, something happens in the family, the entire risk will be borne by us. That is also a challenge. So this is not an easy thing, and that is why I said that I think this is as complex as any retail finance. I think all of us are realizing that the involvement of credit in the entire JLG and microfinance is very different than what it used to be, even about a year back. So you will see significant focus on this.
I do not know what this percentage as a number should be, but yes, we are very cognizant of the fact that certain set of customers should only rely on Fusion for everything.
That is it. This answers all my questions. I wish you luck in the release.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand over the conference to management for closing comments. Over to you, sir.
Thank you. I think first at the outset, with great humility, I would like to thank all the stakeholders, each one of you. I think we have been through the entire industry and Fusion had been through a very challenging time. While the internal teams have been rallying around to get Fusion to this level. I think each one of you on this call, your involvement, your guidance, your inputs have helped us hugely, and we will continue to bank upon you for advice. With that, I would like to thank each one of you. I think it has been an amazing two-way communication with each one of you. And I am absolutely sure that the Fusion that we are building from here on will be able to take bigger challenges than what the industry has witnessed in the past. Thank you so much.
Thank you. On behalf of Fusion Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.