Ladies and gentlemen, good day and welcome to Fusion Finance Limited Q3 and nine months FY 2025 earnings conference call. As a reminder, all participant lines will be in listen only mode and there will be an option 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. Now I hand the conference over to Mr. Smit Shah from AdFactors. Thank you and over to you, sir.
Thank you, Leo. Good morning, everyone, and thank you for joining us on the Q3 nine M FY 2025 results conference call of Fusion Finance Limited. From the management today, we have Mr. Devesh Sachdev, MD and CEO, Mr. Gaurav Maheshwari, CFO, Mr. Sunil Mundra, CEO of MFI business, and Mr. Deepak Madaan, Company Secretary and Chief Compliance Officer. Before we begin, I would like to remind you 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 2025 results presentation that has been uploaded on the stock exchanges and company website. I now hand over the call to Mr. Devesh to begin the proceedings of this call. Thank you and over to you, sir.
Thank you very much. Good morning, everyone, and thank you for joining Fusion's Q3 financial year 2024-2025 results conference call. I am here along.
Ladies and gentlemen, please stay connected. The line for the management host. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We are the line for the management reconnected. Sirs, sorry to interrupt. Could I find the request to proceed from the beginning, please?
Thank you. Good morning, everyone, and thank you for joining Fusion's Q3 FY 2025 results conference call. I am here along with my colleagues, Sunil, the Chief Operating Officer for microfinance business, Gaurav, Chief Financial Officer, and Deepak Madaan, Chief Compliance Officer. We were among the first ones in the industry to recognize and acknowledge the building stress at the beginning of this financial year.
In accordance, we proactively and swiftly took several initiatives to address the issues and mitigate the impact. During the last earnings call, we had spoken about them in detail. I would now like to update you on some positive outcomes of these steps. Due to our well-thought-out initiatives across sourcing and collections since Q2, early green shoots are now clearly visible in terms of business improvement across various parameters.
Firstly, as highlighted in the previous quarter's earnings call, we have been following very stringent trade criteria, even tighter than existing MFIN guardrails. Due to tightening of underwriting norms, we are observing building up of superior quality portfolio since August 2024, and have also seen a moderation in AUM, which now stands at INR 10,599 crores. What is most promising is that we have seen meaningful deleveraging in our customer base. I would request you to refer to slide number nine, where we can see a significant downtrend in shares of Fusion Plus greater than equal to three and Fusion Plus greater than equal to four lender buckets within our customer composition from March 2024 to December 2024.
About 80% of our clients fall under Fusion Plus less than equal to two lenders bucket as of December 2024, and we expect this share to increase further over the period. Therefore, there will be minimal impact of new MFIN guardrails to be effective from April 1, 2025. The Fusion Plus less than equal to two lender customer share was 79.3% in December and now versus 68.4% in March 2024.
There has also been a reduction in overall outstanding loan exposure of our customers, with about 50% customers having total MFI loans of up to or lower than INR 60,000 as of December 2024. The lowering of customer debtiness will ensure that our portfolio remains healthy. Second, there has been a consistent improvement in net flow rates month-on-month across all DPDs.
You will see that since October, the net flow rate from current to PAR 1 to 15 has improved by 200 basis points. This is also evident in our net collection efficiency of current portfolio, which has been improving month-on-month and has risen to 97.7% in December 2024 from 96.1% in Q2, financial year 2025. We continue to focus on solvency and ended the quarter at 22.2% capital adequacy ratio, which would be 50%+ if you pro forma for the INR 800 crore rights issue planned, further strengthening our balance sheet. Our liquidity position has been further enhanced since December, with INR 400 crore of incremental liability raised till date in Q4 2025.
This quarter, we have also significantly enhanced our provision coverage across all stages, with coverage on stage three loans increased to 88% in December 2024 from 76% in September 2024, which has helped bring our NNPA down to 1.7% from 2.4% in the previous quarter. More specifically, we have not recognized interest on stage three loans and prudently reversed all deferred tax assets accrued till date.
Few important points to note here are, reversal of DTA is a non-cash item and does not impact capital adequacy or cash flows. If you refer to slide number 10, you will see that our PAT at a normalized tax rate would have been loss of INR 380 crore if you apply the standard corporate tax rates on the PBT. I would also like to inform that we have successfully obtained waivers from majority of our lenders for permanent breaches.
It is encouraging to see that our lenders continue to have complete faith in Fusion and its sound business and governance fundamentals. The company has received waivers from all lenders except five lenders for borrowing amounting to INR 979 crore, representing only 10.84% of total borrowings as of December 31, 2024. We have been engaging constantly with remaining lenders and are confident that there will be no demands for immediate repayment of borrowed funds. Our MSME vertical has shaped up well over the years, and we now believe that it is at an inflection point. The portfolio is growing at a good pace, and the quality continues to be healthy. Of the INR 630 crore of AUM in nine months financial year 2025, the share of secured loans is around 85%.
We have significantly honed our underwriting capabilities in this vertical, and we are confident that we can bank upon our MSME portfolio to become a key pillar in our future growth. We continue to strongly focus on leveraging technology to improve our understanding of the customers and engagement with them. We are heavily leaning on risk analytics and data analytics to understand our customers in a more nuanced way, so that we can engage with them in a more meaningful manner. Further, we continue to invest on enhancing our technology framework. We, in this financial year, introduced our Elevate and Elevate platform windows built in-house for our MSME vertical. Now we have also started our journey towards building or making a hybrid model for microfinance vertical in the coming financial year.
It is important to note that going forward with strong industry-wide guardrails, the microfinance customers may see rate fees for some time, but it will have a good impact in the long run. I must acknowledge that with shifting customer behavior and market dynamics, along with latest technological options, the color of the industry is also changing. This calls for modifications in our outlook and processes too.
We are steadily adapting with these changes and will continue to do so. I would like to reiterate that we have always believed in maintaining transparency while taking advantage of our strategy and actions. As a result, we have achieved many significant milestones during our journey of 15 years. We have also faced many difficult sector-wide situations but have come out triumphant every time. Let me reassure you that this time is no different than others.
The implementation of guardrails, focus on prudent underwriting, portfolio monitoring, and enhanced recovery mechanism is expected to act as a stabilizing force in the coming quarters. These measures are already yielding results in controlling incremental stress and ensuring discipline. While we continue to closely follow the situation, we should start seeing stabilization from Q1 2026.
Once that happens, we strongly believe that our extensive network, strong customer connects, solid reputation on the ground, and extensive rural focus as well as experience will enable us to steer the company towards a sustainable growth. At this stage, we remain cautiously optimistic and continue to be prudent, that should be our approach. Thank you very much. I now hand over to my colleague, Gaurav.
Thank you, Devesh. Good morning, everyone. First, I will take liquidity and cost of fund for three months to nine months ended for FY 2025. In Q3 FY 2025, we have raised amounting to INR 395.18 crores, including INR 95 crores from direct assignments. Till nine months, we have raised INR 4,450 crores, including INR 1,010 crores of direct assignments. As of December 31st, 2024, our liquidity stands at INR 1,151 crores, and we have sanction in hand of INR 1,250 crores.
As of yesterday, the liquidity stands at close to INR 1,400 crores. Would like to refer to slide number 27 on static liquidity position, where we have given position that for the next six months, if we don't get incremental money from the lending side, and we get only INR 400 crores as a rights issue amount in the March, we are still very well-positioned for the cash flow perspective. We are maintaining a healthy capital adequacy ratio of 22.20% as of December 31st, 2024. This will further improve post-infusion of capital through rights issue.
We have received continual support from lenders by way of extending the condonation of breach of financial covenant. We have received 83% of the waivers out of the amount of INR 5,617 crores. These are the breaches which got breached as on 30th September 2024. As on December 2024, we are in breach of financial covenant amounting to INR 5,288 crores.
As of yesterday, we have received waiver amounting to INR 4,145 crores from a couple of lenders, where they had extended till Q3 and Q4. The company is in discussion with many lenders to obtain condonation of the breaches. As of date, none of the lenders have issued any acceleration notice to the company. Our marginal cost of funds stands at 10.15% for 9 months FY 2025. This is a reduction of 43 basis points on a year-on-year basis.
The average cost of funds stands at 10.21%, and it has decreased by 32 basis points on a year-on-year basis. The nine-month NIM stands at 10.66%. It has decreased by 44 basis points on a year-on-year basis. The reduction is largely pertaining to interest reversal on account of write-off and non-recognition of interest on stage three assets. The cost-to-income ratio stands at 47.38% in nine months FY 2025.
If we adjust this cost-to-income ratio for interest reversals, the cost-to-income ratio would come 43.1%. The operating cost has increased by 151 basis points. It is largely contributed by split of MFI branches and opening of five MSME branches. As mentioned in Q2 FY 2025 investor call, increase is due to change of incentive structures, strengthening of collection team, and rationalization of client per field officer. It also has a contribution because there is a degrowth in the portfolio.
As on December 31st, 2024, the pre-provision operating profit is INR 646.36 crores. The company has made ECL provision of INR 572 crores in Q3 and INR 1,615 crores in nine months FY 2025. Please refer to slide number 11 of the presentation. The coverage of stage three has been increased from 76% in September to 88% in December 2024. This includes management overlay of INR 59.50 crores.
The coverage of stage two has also been increased from 60% to 72% in December 2024. Similarly, the coverage of stage one has also been increased from 1.84% to 2.68% in December 2024. The coverage of stage two and stage three is 84%, and the company has de-recognized interest on account of write-off and on a prudent basis did not recognize the interest income on stage three assets. The amount is approximately INR 95 crore-INR 98 crores. The gross NPA stands at 12.58%, and net NPA of 1.71%. Thank you.
I shall now open the floor for questions. Thank you very much. We now begin with 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. Participants, you may press star and one to ask the question. The first question is from Shreya Shivani from CLSA India. Please go ahead. Shreya, may I request you unmute your line and go ahead with your question, please? Shreya, can you hear us?
Hello, can you hear me? Hello.
Yes. We can hear you now perfectly.
Yes.
Okay. Thank you for the opportunity. Good morning, everyone. I have two questions. First is on now that we are at a certain level in terms of our collections, and we have been making efforts on the collection side, etc , and we have slowed down our dispersal also. Going ahead, what is our outlook on how long will we take to stabilize our collections and efforts so that our disbursements pick up? What will be our outlook?
What should we expect for 4Q, 1Q onwards? That is my first question. Second is on the branch-level activity. We heard that the loan officer attrition has been quite elevated in the industry, which is something which happens during times of stress. Can you help us with what is the attrition number for our loan officers and our branch managers, and what efforts are we making towards stabilizing our branch operations and employee performances, et c?
Yeah. Thank you. I will answer your first question. Look, right now because of this challenge which we have faced and the overall operating model needed a certain tweak. We have been working on it, starting from the onboarding of customers, credit underwriting, collection, looking at the whole process, looking at how do we look at KYC. I think we have used this time to really look at every aspect. Then you can see that there are buckets which have bulged. With this customer in the past also comes back because they know that there is a credit bureau record, money is required, there is always a demand. But it needs a lot of effort, a lot of follow-up. Right now, our effort is not that we are consciously saying that no, we will not disperse.
It's just that the whole system is getting acclimatized to the new credit underwriting norms and the rejections and everything. I believe that this will continue for another one or two quarters, and then I think you will see us coming back because we have 1,400 branches and we have the team experience. Once all these new changes which we have done, the whole system gets acclimatized and there will be some overall you can also see that there are branches where the PAR is high.
We are going very slow. We are just going with our existing customers. All that, once we see that those branches also coming back. I can give you a simple example. If you remember last year, we faced a lot of challenges in Punjab. Punjab for the last eight, nine months has been doing very well. We are thinking of starting some of the branches there. We're not doing disbursements in this quarter and start slowly with adding new customers. I think the idea is that we remain focused, we remain prudent.
Overall, there are many changes which happened, including enhancing guardrails. You can also see that overall customer duration is coming down. I think we would like that this whole phase where there's a lot of consolidation is happening. Once we pass through this, we keep a very high focus on collection. With the kind of network we have, we can always come back in terms of our strategy to grow. I still believe that it will take us another 1 or 2 quarters before we start looking at very actively on the growth. I think by that time, team, everything will settle down.
Now, second, your point on the attrition. You are right. If you remember, even in the last call, we have mentioned about many steps we have taken. Starting from changing the whole. If you see one important thing is because there are many customers where you still have to do door to door. What we have done is we reduced the load of the field officer. If you remember, at one point of time, we had around 550 customers being handled by a field officer.
It has now come down to around 400. That is one big change we have done. A lot of telecalling support, a lot of collection support is being given. In branches where there are high 60 plus numbers, there is a separate team for doing collections. Incentive structure has been changed. We have providing extra facilities for them in terms of mess facility. For a new joinee, for the first three months, there is no target. We are giving a fixed incentive.
Continuous employee engagement is happening. I think you're right. We have seen high attrition, especially in August, September. Now what we see is that overall attrition is coming down but still remains high. I think we still believe that a lot of work needs to be done to make sure that we are able to retain people. A lot of challenges are not because we have not taken step, but also because of the whole environment has become slightly challenging.
I think our HR teams and we have HR team also at the ground, and we are continuously trying to source trained people and try to engage with the people. I think we believe that we will be able to. Now some relations we have seen. If I look at from August till to November, December, it is slightly coming down. I hope once this overall stability happens, people retention rates go up.
Got it. Sir, just a quick. How much was the attrition in August, September? Was it more than 50% and has it come down under 50% right now?
Yeah, it has come down to under 50% now.
Okay. Perfect. This answers my question. Thank you and all the best.
Thank you.
Thank you. Next question is from Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Good morning, everyone. Thank you for taking my question. Firstly, on the rights issue, you have already published an update in your presentation that SEBI approval is awaited. But I am just trying to understand if you can give some more color beyond SEBI approval. What is it that we are waiting for? Is it the new CEO appointment that we are waiting for?
Or is it that among the two promoters that we have, either one is not very keen to subscribe to the rights issue? Basically, what I am trying to understand is, in your presentation in March, you have shown that you will get around INR 400 crores part of the rights issue. Just trying to understand the thought process, whether this will be in two tranches of INR 400 crores each or how should we read it?
Yeah. First we clarified even last time that this INR 550, we made it to INR 800 crore. Also when we looked at the advice we get from our bankers, this is the right overall structure. If you right now hindsight, you could see I think INR 800 was the right decision. Even if we get in the first tranche, the INR 400 crore, I think our capital adequacy will start touching around 25%. Then we will have a next tranche available to be called anytime in April. That is there. There is no hesitancy in terms of putting money. There is no other thing which is in our mind or anything which is going on. We have got approval from both the stock exchanges, NSE and BSE. Even two days back, we got some queries from SEBI.
We are hopeful that very soon we will get the approval from SEBI, and then we will get over with it. There is no hesitancy. We are not waiting for any other thing. It is just procedural regulatory approval is awaited from SEBI. Then you said that. No, it is not that we are waiting for the new CEO to join and all that. I do not think it has any link to the rights issue. That is a parallel process which we are running and whenever we have a development, we will definitely share with all of you. Let me again reiterate, there is no hesitancy from the promoters to put money or any other reason for delay. It is just that we are following all the process, our bankers are working, and we are awaiting the SEBI approval.
Received, sir. The second question I had was just trying to understand, we have already picked out the silver bucket collection efficiency, which seems to have improved in December and slightly again in January. You asked for about in your presentation, green shoots that you are seeing. Just trying to understand, today when you speak to MFI companies, you get sort of mixed reviews in terms of the status which is there on the ground inside the 2025.
If you can give some more color on that. All that I am trying to understand is whatever we have seen until January, are we now confident that this is a trend or is it something that needs to be monitored over the next couple of months before we can be confident that this is indeed a trend and we will see things improving? A related question for Gaurav sir here is, given where we are today, are we now in a position to kind of call out how much of credit cost will be required in this credit cycle?
I will first answer. I will not like to comment on anything about competition, but I can only tell you that we are only presenting what we are seeing. We were the first one to call out in Q1 when we saw that there is some sudden flow rates which have gone up and now it is very clear that it has happened in the sector. We are very confident. If you could see that we took huge steps to really arrest this and it is now very clear and green shoots are visible. I can tell you one more data that the new sourcing which we are doing which we changed in the middle of August and now when I look at it is a five-month MOB.
Though it is too early, it is just a five-month MOB, but the numbers are, the imprint or you can early delinquency is clearly showing trends which we have seen in year 2022, 2023. The idea is that we remain cautious because we want to see at least one or two to three more months to remain confident and look all the buckets. I can also tell you that we are seeing even our February up till now is better than January. As a prudent company, we would like that we see this through two, three months to really then form opinion that, "Look, fine. Now we can get back to this thing." Because there are other balls in the air. There are certain geographies where it is still lagging.
If you refer to the slide number eight, there are even, you see Tamil Nadu or for that matter Odisha, some top five states. That is the big issue. The challenge we faced was because two, three large states for us in top five have faced challenges. So we remain cautiously, as I mentioned in my commentary, optimistic. The overall trends which we are seeing, given why I am talking with confidence till yesterday, are encouraging. Gaurav,
Abhijit, to your question on the credit cost, I think most of the pain is being taken. Having said that, the evolving situations happening in the microfinance sector, we are just taking a stock of it and obviously the effort is to get all the things done in this financial year. So that is the way we are looking at. If you see, if we had gone as per the ECL of September, our loss would have been far, far lower without the interest reversal and the DTA. Having said that, the quarter which we have used for increasing the coverage across stages so that the impact for the new financial year would be very minimalistic and we can start afresh from Q1 onwards.
Got it. Also, in your opening remarks, you had shared the quantum of interest income which has been written off and interest income which has not been recognized since Q3. If you could share that again. I am just trying to understand. I mean, until Q2, we were accruing interest income from stage three. This quarter, we have stopped recognizing interest income on stage three assets. If you can just explain.
It is all done in a way that if there is going to be any write-off in Q4 because gross NPA is at 12%, 12.5%, the impact on the balance sheet on the P&L would be very minimalistic. That is why we have used Q3 as a coverage to sense it in a two-way that we have increased the coverage on the overall portfolio. Apart from that, the interest reversal which is going to potentially happen once we do a write-off in Q4, that will not impact the P&L in a big way. To answer your question, because of a write-off and not to have interest recognition is approximately closer to INR 95 crores to INR 98 crores in totality.
Abhijit, the idea is that we are future-proofing the balance sheet to make sure that since all actions are, whether the actions taken at operating level or at balance sheet level are to make sure that we are able to future-proof it, make it very solid and start fresh and set it up for the financial year 2026, 2027.
Thank you very much. The line for the participant dropped. A request to all the participants, kindly restrict to two questions per participant so the management can address all the participants' questions. Next question is from Ankit Surana from JM Financial. Please go ahead.
Very good morning to all. Hello?
Hello.
Yeah, sorry. Very good morning to all. My question pertains to the Karnataka ordinance that got notified last evening. I believe that close to, from the September numbers, your portfolio is around 1% in Karnataka and overall 10% in Southern India. I wanted to understand, even though it is not applicable on RBI NBFCs, any kind of collateral damage that the management oversees this one.
Look, one united sector, our association, SRO MFIN has been working very closely with the government. As you rightly mentioned, it clearly says that banks and NBFCs issued by RBI will not be covered under this. However, there are elements in the field which try to take benefit out of it. I think the intent of the government has to be seen very positively where they are mostly talking about the code of conduct and RBI already and MFIN also has a very stringent code of conduct.
However, this ordinance, as you can see, has come yesterday only. We are cautious in Karnataka. As you mentioned that we have 1% portfolio. We are watching the situation. The ordinance has come only yesterday. I did not get the full hang of it in terms of what all things. I have already told my team to look into it that what are the things which we need to be careful of in the field. We will be cautious and watching the situation.
The good thing is that it excludes RBI regulatory entities. I think we need to be watchful. We need to be cautious and understand the intent. I think all of us at a sector level also have talked about that all the people on the ground need to follow a certain code of conduct in terms of timing, interacting with the customer and everything. I think all that is more related to code of conduct. Yes, we would like to watch very closely how does it impact the field situation. I am hoping that there will not be a major impact. We still have to wait and watch and see.
Okay. Thank you.
Thank you. Next question is from line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi team, good morning. Just a couple of questions. Firstly, if I look at the recoveries from write-offs in FY 2025 so far, that is about INR 12 crore. If I compare that with the amount of loans which we have written off, let's say in FY 2024, that was about INR 320 crore and another INR 420 crore in the last nine months. So the bad debt recovery seems to be a fairly low number as a proportion of what we have written off. Can you elaborate on what is the reason for this? That is one. And second is just a data keeping question. If you can share the SMA zero, SMA one, and SMA two. Yeah, that's all.
On the write-off, if you see, historically we are able to recover anywhere between 5%-6% from the write-off. And we have recovered close to INR 27 crore. The recovery we have done out of.
In FY 2024.
In FY 2024. This time, I think we have already recovered INR 12 crore. What happened this year was that as there was the flows in the early buckets were very heavy, so teams were oriented towards that. From November, December, we have put a separate team for the write-off pool, and we are hoping that and we are seeing that when the December numbers are in this pool, the collection is better than November.
Similarly, the January numbers from this pool, overall amount which we have collected is better than what we collected in December. So that focus is there, but it comes to the overall with some period. I think you will see broadly the recovery will be anywhere between 5% to 6% to 7%. That has been the trend. If you see even go back to what we. This time because we have a separate team, we are using telecalling. All that should help us to get more, but it will happen over a period of time.
On your question on SMA one, two. Our overall PAR zero is at 19%, because if you see from a collection standpoint, the rolls forward rates have gone slow, but it is still seeming to give a blush to that the pace has gone slow. Also because the portfolio has got slightly de-grown, so the denominator impact also. That's how the number is.
Sir, just one follow on the first question. On these return of borrowers, are you able to identify them, meet them, or have they completely absconded?
No, I think it's a mix of that. You are right. There are around 15%-20% where we see that customers have also migrated. Then there are customers who have changed their numbers and contactability is an issue. But there are customers where we are meeting, and we are speaking to them. We also look at data scrubs where whether this customer, how this customer is behaving with others. If there is a payment which is being done to others, are they current with others or any other market. So we look at all that and accordingly the strategy is made. But broadly, I think what we can see is that there has been a change and we see some customers even coming after one year, two years to pay because they are not able to take further loans.
Overall, at a sector level also, there is a huge consensus on that we should not be doing anything with default because you must have seen the credit card rates where they are even talking about 60 plus. I think that also should help. When the customers will not be able to get the money from any other source, they will come and try to settle their account. But I think it's a mix of that. So, yeah.
Sir, just one last one. The proportion of borrowers which you have shared across buckets Fusion Plus 2, Plus 3, Plus 4. Can you also share a proportion by value of the exposure? That's all. Those were my only questions. Thank you.
Okay. We will share with you separately. We don't have right now, but we'll share with you separately.
Okay.
We will reach out actually. Yeah, separately.
Thank you. Next question is from line of Chintan Shah from ICICI Securities. Please go ahead.
Thank you for the opportunity. I just said that our number of
Chintan, sorry to interrupt you. Hello, Chintan, can you hear us? Chintan, can you hear us? Hello? Hello, Chintan, can you hear us?
Hello.
Yes, go ahead.
Hello. Yeah. Sorry. I just missed the number on interest reversal. Could you please just quantify the number on interest reversal for Q3 and nine months, and is it that we were not reversing the interest on s tage three in Q2 and Q1? Yeah, please give clarity on that.
No. First, as a proven practice in this quarter, what we have done, we have done, you can say, the de-recognition of interest on the stage three assets in Q3. Obviously there was in Q2, Q1, where we have also de-recognized because if you see that once we do a write-off in Q4 or Q1 so there would be an impact on the P&L. That is why we have taken a prudent call to reverse on the NPA asset so that it should not have that impact on the P&L.
Impact is minimal.
Yeah. Earlier it means even if the account slipped into Stage 3, we were not reversing the interest, we were considering the interest in the interest income. Is that.
Yeah.
understanding, correct?
Yeah.
Okay. What will be the total quantum, total amount of interest? I think INR 95 crore to INR 98 crore you mentioned. Was that the number of interest reversal in Q3 or?
Yeah. No. It is a combination of a write-off and the interest de-recognition.
Okay. That would be total 90. Just the amount, basically the interest income reversal from stage three accounting, if you could just share that number. Is that an-
We will share you separately on that.
Sure.
Thank you.
Thank you. That's it from my side.
Next question is from Pranav Gupta from Aionios Alpha . Please go ahead.
Yeah. Hi, good morning, and thanks for the opportunity. Just a couple of clarifications before the questions. I wanted to check when you mentioned current book collection efficiency, what is the exact definition that you are using in terms of what is the nominator and numerator include?
Yeah. So Pranav, basically where we are saying is that book which was current in the month of October, out of which how much people have paid in November. So this is a basically current book behaving every, how it is. Because that was the basic issue, because from a current, the loans are going into one DPD and then floored. That is what we are trying to show here, that even you look at the new loans, current customers going to PAR 1 to 30 and from PAR 1 to 30 going to 30 +. That shows where we have been able to see a huge improvement. That is what we have here.
Understood, sir. Also just another clarification. I think Gaurav sir mentioned that margin cost of funds were about 10.1, if I got the number right. If I look at the PPT, it sort of shows that margin cost of borrowing is at 11.3. Is there a gap?
Pranav, I was talking about on a nine-month perspective, and I think you are looking at on a Q3 standalone perspective.
Understood. Q3 number is at 11.3% in terms of margin cost of funds.
Yeah.
Understood. Sure. Just a couple of questions now that the clarifications are away. In terms of interest reversal, you mentioned that INR 98 crores is the number that you reversed in this quarter. But if I look at our interest income, it's seen a sharp fall, and it seems that the number would have been higher than what you mentioned. Even if I talk about the profit number, you should have mentioned excluding the interest reversal. Maybe there's some understanding gap from my end. If you could clarify that as well, that would be very helpful.
Pranav, if you see that over the last six months, there is a degrowth in the portfolio. Obviously there is a lesser interest, because there is a portfolio which is getting running down and it is going out of the portfolio. The interest income is slightly getting lower. Apart from that, the call which we have taken on because that INR 95 crores to INR 98 crores includes the write-off also. If you see that we have done a write-off in Q2 also. I think it has two, three impacts. One is the write-off, second is the interest reversal call which we have taken in Q3. Apart from that, if you see the degrowth in the portfolio in last six months.
Absolutely understand the degrowth bit. No doubts there. Just that the bit, if you just compare, say, Q2 versus Q1 and Q3 versus Q2, obviously we have seen a portfolio degrowth even in Q2, but it seems that we have not reversed any interest in Q2 itself. I wanted to get clarity on that bit.
No. We have de-recognized the interest on Stage 3 in this quarter only. In Q2, we have not done that. Only what we have de-recognized in Q2 was only on the accountable items.
Okay. Sure. If you could just quantify the interest reversals in all three quarters or maybe nine months, that will be great.
Pranav, as I mentioned in the earlier question, we can deal this in a separate discussion, or you can just write it to the investor relation. We can just respond on that.
Sure. Just one last question, could you give out the rationale on the DTA reversal this quarter, especially given that this quarter itself also was a loss? Just some rationale there.
So basically, Pranav, if you see our notes to account, point number seven, we have clarified that there is a note on going concern and it is linked to another metro prudence. We are under accounting, Indian accounting standard Ind AS 12, this has been done. We have clarified that. Also as soon as in medium term, we start our balance sheet turns back to black, I think we can always approve this. So it is more of an accounting entry and it is a non-cash item and it does not impact anything else. But we have clarified in the notes to account in point number seven.
Sure. I have no questions. I learned that from the queue.
Thanks.
Thank you. Next question is from Zakir Husain from AU Small Finance Bank. Please go ahead.
Hello. Good morning, everyone. I just have one question. Out of top 10 states, which states are worth it in terms of collection efficiency?
I will tell you because we have mentioned this in our If you look at the slide number eight, if you see Tamil Nadu and Odisha are still lagging behind. As I also covered that these two states, even Bihar, you see from November it has started picking up. In January also it has more or less, it has not shown much improvement. It has not shown improvement from December. But I think these Tamil Nadu and Odisha are two states where we are still seeing some kind of lag. It is coming up. We are doing efforts, but I think it is still lagging from the other states in the top five.
Okay. Thank you.
Thank you.
Thank you. Next question is from Srijan Sinha, from Future Gen erali. Please go ahead.
Hi, Devesh. Hi, Gaurav. Devesh, just wanted to understand on this deferred tax asset space once again. So when we have not taken the benefits of the negative tax credit that we would have got this year, when we turn profitable next year, does the accounting imply that we will have a zero P&L taxation next year and thereby our PBT is equal to PAT, and which will inflate your ROE and ROE? Is my understanding correct on the accounting treatment?
Yeah. You are absolutely correct. Srijan, what we need to understand now that why, as Devesh has mentioned in his earlier remark, that as today, there is a covenant breach of a lender and as per Ind AS one, you need to have a certainty of a cash flow for one year. But most of the lenders where we have got the continuation of the breaches is till Q3, Q4. So auditors are pointing out that there is a going concern issue and consequently there is no point continuing DTA once it turns out into a black, that is in Q1. So you can immediately recognize the DTA benefit and you can just take the benefit in the coming years.
Okay, fair enough. But Gaurav, what changed between Q2 and Q3? Because the same comments were there in Q2 results as well.
No. If you see from a loss standpoint
Yeah
The loss has increased in this, and obviously there would be a taxable loss for this year. As a prudent basis, and as per Ind AS 12 also, if there is a, you can say, certainty that in the coming one or two quarters you are not going to have that profitability, it is prudent to reverse that DTA.
Fair enough. My second question, Gaurav, is on interest reversal. Just needed a clarification out there. If you were to hypothetically, let's say, write off the entire INR 200 odd crore of the stage three assets, does that imply that you only have to provide for the unprovided portion, which is that 11% and there is going to be no interest income reversal on that pool?
Going forward, if I do a write-off of my stage three, then there would not be any interest reversal going forward from that particular asset.
The entire INR 200 crore, the interest reversal up to December has already been taken this year.
Yeah.
Fair.
As I mentioned, Srijan, in my earlier comment, and Devesh has also reiterated that we are preparing for FY 2026 and going forward, so that the impact, whatever we need to take in this financial year, we have already, and most of the pain is already being taken in Q3.
Okay. Fair point. One more question on the business insight, Gaurav. I mean, I see that in the Q4 till date, you have already raised about INR 400 crore of equity. The entire last quarter you raised just about nearly INR 500 crore. Have you seen some sort of a disruptive pickup in this quarter, already in January and February, initial part of the fiscal year?
Srijan, we are still being very calibrated and we are very watchful. As I mentioned earlier, the system is taking time. The whole team is taking time to acclimatize to the new changes. A lot of underwriting with a lot of system development is also happening. We will still be prudent and calibrated in this quarter. Once we have a confidence that the things, once we see that on the ground and there is empirical evidence, as I mentioned earlier, five months MOB is now giving us confidence.
But we would still like to wait for one or two months and also look at the certainty in terms of our liquidity. Before we really start talking about growth. Right now, effort is to recover as much as possible, which has gone in different buckets. But I think we have a huge network, team and everything. We are confident that once we see more evidence of stabilization, we can get back to a sustainable growth path.
Thank you very much, Srijan. Kindly come back. Ladies and gentlemen, we will take one last question from the line of Bhavik Shah from InCred Research. Please go ahead.
Hello. Am I audible?
Yes, Bhavik.
Hi, sir. Appreciate your efforts on asset quality front in various phases and the new customer underwriting. Just want an update on what is happening on state-specific level. How are you seeing the customer intensity, defaults? Are you seeing any asset quality come back massively? Any update qualitative and particularly Tamil Nadu would be helpful.
Look, if you can just one is Tamil Nadu I heard, but in between I could not hear. What did you say? What do you want my view on?
How is the connections happening over the period? Any articulative comment on how is the customer's behavior, how are they coming back, so on and so forth.
Yeah. Look, as I mentioned and we have shown every kind of reaction or lead bucket where I can tell you each bucket we are seeing an improvement. If I talk about from October to November to December to January, even January to February, every bucket we are seeing improvement. This customer, you can understand, is a vulnerable section. This customer cannot give you three installment together or four installment together.
You have to work with this customer and then a lot of follow-up. Also one important thing which we have pointed is we are seeing in various crisis with this customer is that they understand the kind of value which microfinance company is bringing on the table. They understand that the doorstep surveys, they understand that it is one of the least in terms of the cost.
This is much better than going into informal sources and all the other benefits which is available. I think what we are seeing is that green shoots, we have already shown that the overall flow rate from current 1-30, 30-60 is coming down. Slowly we are seeing that green shoots, people want to pay, want to come back. And once this whole guardrail and the industry coming together will also help because it will send a very strong message that customer, nobody will be able to get money if they default. I think in the short term, there is some pain.
But in the long term, I think this will be very good for a sustainable growth of sector because it will send a very strong message that people need to pay and every company will follow guardrails. All that in my view and you have seen in our customer leverage is coming down. All this clearly points out that whatever overheating which has happened in the sector, it is slightly cooling off. And then I think in the next one or two quarters, you will see a stabilization and normalcy coming back.
Thank you very much. Ladies and gentlemen, we will take that as our last question. On behalf of Fusion Finance Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you. Have a great day.