Ladies and gentlemen, good day and welcome to Fusion Finance Limited Q1 FY 2025 earnings conference call hosted by JM Financial. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the 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 the conference over to Mr. Sameer Desai from JM Financial. Thank you, and over to you, sir.
Good evening, everyone, and welcome to the 1Q FY 2025 earnings conference call of Fusion Finance Limited. From the management today we have Mr. Devesh Sachdev, MD & CEO . ; Mr. Gaurav Maheshwari, CFO; Mr. Tarun Mehndiratta, COO of the MFI business; and Mr. Deepak Madan, Company Secretary and Chief Compliance Officer. As always, we will have opening comments from the management team, after which we will open the call for Q&A. With that, I now transfer to Mr. Devesh Sachdev for his opening comments. Over to you, sir.
Thank you Sameer and JM Financial for hosting us. Good evening, everyone, and thank you for joining Fusion Finance Q1 financial year 2024-2025 results conference call. As Sameer mentioned, I am here with my colleagues Tarun, Gaurav, and Deepak Madan. I would like to cover key business highlights for the quarter, followed by some of the challenges we are recently seeing on the ground and actions we are taking to address the same. Also, in line with our conservative approach, we have increased our provisions, early recognition of some risk. I would also cover this in detail. I would request you to keep the presentation handy. Our disbursements in Q1 have remained steady at INR 2,987 crore compared to Q4. Our active borrower count has increased by 8.44% annually to reach around INR 39.5 lakhs.
Our ticket size over the last year, as we have guided, has grown by around 9.5%, and still we have one of the lowest outstanding per customer at the sector level. We front-loaded our branch openings in financial year 2025. 101 branches opened in Q1 to take the total count to 1,398 branches. 50% of these branches were split branches. Our NIM remained stable at 11.6%. We saw 19 bps reduction in marginal cost of borrowing. OpEx for Q1 saw an increase on account of new branch openings and annual increments. This should normalize in the latter half of the year. Our PPOP was healthy at INR 297.75 crore. Now, I would like to talk about some of the challenges we saw on the ground.
Since last two, three months, we saw slight moderation in collections with a concerning trend in some pockets, consequent to which we did a deep dive into our customer data that pointed towards an increasing customer-level leverage and corresponding impact on the repayment behavior, JLG discipline, et cetera. During the same time, MFI practitioners deliberated on the situation at MFIN and post consultation among its members. MFIN came out with a set of guardrails targeted towards calibrating customer leverage and bringing lending discipline among the MFIs. This was then adopted by all the members. In our opinion, this would balance out the growth in the sector, and we are hopeful of a positive impact over a period of next two to three quarters. Given the trend, we had detailed discussions with our business service team on the potential flows from the impacted clients.
Based on this, the management took a call to recognize early the potential impact of rising flows in the financial, which you will notice is reflected in our Q1 trade cost. To explain some of the trends we are seeing in more detail, I would like to draw your attention to slide number eight on our customer leverage. As you can see, our outstanding per customer is mostly below INR 40,000. But 33% of these customers have outstanding greater than INR 1 lakh across microfinance loans. This has increased from 23% in March to 32% in March 2024. Also, the customers which are having more than four relationships have increased significantly. This is primarily due to the fact that many of our onboarding customers have gone ahead and taken two or more loans, and consequently, the leverage levels have gone up in some cases to levels beyond their repayment capacity.
We saw the impact of this on our portfolio as some of our leverage clients were unable to service the installments even after multiple follow-ups. As I mentioned, due to the rising customer leverage impact on collection, MFIN came out with a set of guardrails to control the overlending to customers, which has restricted sourcing of customers already having four lenders and also those having microfinance loan outstanding of more than INR 2 lakh. Fusion's existing policies already had both exposure and lender cap, but this step will help in maintaining the same at national level, which will benefit all the players. Another important trend which we highlighted in our investor meet in May is that post COVID, the center discipline has been impacted. This is leading to higher cases of door-to-door collection and different collection efficiency.
We have also seen customer migration in last two months in some of these pockets. As we mentioned in our earlier calls, for sustained improvement in center discipline, we have rolled out a customer loyalty program across more than 100 branches, and we intend to scale it up over the medium term. This initiative is already showing some early signs of success. We have also seen because of the tough working conditions in the last two months, and door-to-door collections, the attrition in some of the geographies has been higher. In our investor meet in May, we had spoken about the K-shaped recovery, and we are witnessing the same with some segments doing well and some still struggling. As the on-field dynamics are evolving, we as an agile organization with a seasoned team on ground are confident of navigating this dynamic situation.
Slide number 11 captures all the steps we have taken in this spirit. We are calibrating our disbursement in line with our portfolio risk assessment. We have stopped fresh disbursements in 104 branches. We are further tightening our customer onboarding criteria. Our incentive structure has been revamped with more alignment with collections. Over the last year, we have been guiding that the load of the field officer has been rationalized. Now it is around 450, and I think this should start reflecting in better numbers. Delegate collection team and telecalling infra has been strengthened to take care of the flows into the harder buckets. Slide number nine captures the detailed breakup of credit costs. The higher than usual slippage in our portfolio quality towards the latter part of June led to increase our steady-state credit cost to 1.28%.
Also, as highlighted by me, in view of the continued slippages, we have proactively moved INR 221 crore of our portfolio pertaining to 55,000 customers Stage 3 using filters which include collections received in recent months, center meeting attendance, leverage levels, performance with other lenders, et cetera. This early recognition of risk and consequent provision has increased our credit cost by INR 141 crore in quarter one.
Here, I would like to add that this portfolio is across geographies with higher impact from Tamil Nadu, Rajasthan, Odisha, MP, and Jharkhand. Also, post our annual review of ECL model, we have tightened the coverage. This is the updated flow and recovery data. This has added INR 66 crore to our credit cost in Q1. Moving to a quick update on our MSME book. Our MSME book grew by approximately 8% quarter-on-quarter to reach INR 570 crore.
The focus continues to be on growing the secure MSME book over the medium term, and we are very happy with the way it is developing. Our balance sheet remains robust with diversified liability profile, healthy ALM, and capital adequacy of 25.86%. To sum up, we remain watchful of the situation on ground and remain hopeful for improvement of performance in Q2. We expect to bounce back to normal business performance expected from us from Q3 of FY 2024-2025 with both our initiatives and industry level steps start yielding results. We continue to remain focused on our path to create long-term value for all our stakeholders. With this, I hand over the call to my colleague, Gaurav. Thank you. Thank you, Devesh. Good evening, everyone. Would like to speak about some of the key highlights for Q1 FY 2025.
The core interest income of the company grew by 7.85% on quarter-on-quarter basis and 29.70% on year-on-year basis. The total income has also increased by 2.67% quarter-on-quarter and 27.84% on year-on-year basis. Our marginal cost has further reduced by 19 basis points on quarter-on-quarter basis and 69 basis points on year-on-year basis. We will continue to work on optimizing our cost of funds. We expect to maintain the cost of fund or marginal cost of fund at the similar level. Average cost of fund has decreased by 48 basis points on year-on-year basis and 9 basis points in comparison to Q4 FY 2024. Net interest margin has also increased by 5 basis points to 11.64% from Q4 FY 2024, which was 11.59%, and 75 basis points on year-on-year basis.
The operating cost has also increased by 15 basis points, but that is largely contributed by opening of 101 branches, strengthening of collection team, and also rationalization of client per relationship officer metrics. Operating cost of MFI business is 5.90%, and MSME business contributes 0.38% for Q1 FY 2025. Cost to income stands at 38.39% in Q1 FY 2025. The pre-provision operating profit is INR 297.75 crores, increased by 26.49% on year-on-year basis and 2.43% on a quarter-on-quarter basis. The profitability in the quarter was impacted by early recognition of risk in the portfolio and strengthening of ECL methodology. Would request all of you to refer slide number nine for detailed working of elevated credit cost. The net credit cost for Q1 FY 2025 is 1.28%, excluding the impact of stage movement and ECL strengthening.
As per company's early recognition and conservative provisioning policy, we have moved this customer from Stage 1 to Stage 3 and some customers from Stage 2 to Stage 3. These customers are having an exposure at default of INR 221 crores. This stage movement has a credit cost impact of INR 141.45 crores. Apart from the above, basis our annual review of ECL model, we have also strengthened our ECL methodology. It has an additional impact of INR 66.03 crores. The ECL as on June is INR 644.06 crores, which includes INR 59.50 crores as management overlay. The overall coverage for Stage 3 without stage movement is 134%. We have done write-off in this quarter of INR 58.40 crores, which is 0.54% of the closing portfolio. We have de-recognized interest of INR 11.85 crores in this quarter. The gross NPA stands at 5.46% and net NPA at 1.25%.
Without stage movement, the gross NPA stands at 3.44% and net NPA of 0.48%. We have done direct assignments amounting to INR 479.49 crores in quarter one FY 2025. The DA outstanding as on 30th June is 10.48% of the AUM. We would like to continue the same subject to market conditions. In this quarter, we have also closed $25 million facility from DFC, which is in sync with our strategy of tapping varied source of funds and diversify our liability mix. CRISIL has also assigned commercial paper rating of A1+. As of 30th June , we have sanction in hand approximately of INR 2,400 crores. Thanks. Now we can open the floor for 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 withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Pranav Gupta from Aionios Alpha Investment Advisors. Please go ahead.
Hello.
Yes, Pranav.
Yeah. Hi, sir. Good evening, and just a few questions on this credit cost policy change. First being, you mentioned that there has been some tightening on the ECL model. Is this just in line with the annual review that is done or is this done specifically based on the conditions that we have seen in this quarter? What is the PD, LGD assumption changes that have been made that has led to this additional INR 66 crore impact? That's the first question.
Pranav, this is an annual exercise which we do with our auditors and the risk model which we have in place. The adjustment which we have done in our PD and LGD, earlier we used to take five years average, now we have shifted to three years average. Because it has a period of COVID period, slightly that elevation of LGD has come up in the picture.
Okay. Going forward, obviously this will be reviewed again on an annual basis.
Yeah. Absolutely.
Sure. The second question is on the recognition that we have done, based off of the impact that we have seen on the ground. This additional recognition of INR 221 crore of the 55,000 borrowers, could you sort of break that up into how many of them were in Stage 1 and how many were in Stage 2? Also additionally, this increase of borrowers having more than three or four loans in addition to Fusion. I would like to believe that this would be more of a gradual increase rather than happening only in one quarter, where Fusion Plus 4 has gone from four to 9.6, Fusion Plus 5 has gone from 1.4 to 6.2. Why is this step so drastic in this quarter, and what has led to this decision-making apart from some of the additional steps that we saw on the ground?
Yeah. We first answer the. Approximately 48,000 customers have moved from Stage 1 to Stage 3, and near about 6,500 customers have moved from Stage 2 to Stage 3. Pranav, you are right. We have always been saying it's a K-shaped recovery. We have also been highlighting that there are certain geographies where credit cost has been elevated, and we are watching it very closely. You are right that it is not that the customers suddenly are taking more loans. However, the flow which we have seen from what we were seeing in the customers going to the next bucket, and especially with some of these customers we have seen that their behavior with others because there was no payment which came even in July.
That is the reason and then we looked at, and this could have accentuated because of the macro environment we had in the first quarter. We believe that it is too early for us to really tell you that whether this is transient, temporary. We are taking steps. But I think, as a company, we always are very prudent and early in terms of recognizing we have our own risk model. One more thing which we have seen is that some of these customers have taken loans not from MFI, but also from consumer lending, fintech lending. That also has happened, especially when we looked at this cohort. That was a trigger point. We had a discussion that this is a customer where there is the overall likely of default will be high. That's why we said that let's recognize it early. However, you're right.
We have been seeing some of these trends, but they were not very concerning. We have always been talking about it, but this was something which we saw, which was slightly concerning. That is why we took this step. We had a very detailed discussion on this even at our board level. It is not that we are saying that we will not follow this customer. We are strengthening our collection team. We have changed our model in terms of how many collection officers we need. That is now we are actually re-looked at that number, and we are putting more people there. As I mentioned to you, we are very focused on tightening our, as I mentioned, in that our sourcing.
When earlier as per our policy, suppose a customer, when we are onboarding a customer and the customer has been in the last six, eight months even, it has gone up to 60 days DPD but has come back, we could still consider. We said, okay, fine. The customer has come back. He has been paying. But now we are saying that from 1st August , we have put up a policy where we say, okay, customer, if it has gone beyond 30 DPD, we will not onboard that customer. We are doing a lot of calibration there. This is what it is. We are seeing the ground. We are seeing some data points. I think we decided as a management that we should call out this thing early, and that is the approach we have taken.
Right. Just one more thing on this bit. You mentioned that 48,000 of these 65,000 customers are in Stage 1. It would effectively mean that they have probably missed only their June EMI, right? Just to understand this better, missing one EMI, obviously, in addition to all these other leverage factors that you mentioned, has prompted us to sort of push these guys into Stage 3 directly from Stage 1. Does it sort of not indicate that there is extremely low chance of these guys sort of paying back? Or what has actually pushed these customers to not pay at all? Because if I look at the geography, some of these geographies, namely Tamil Nadu, which has faced floods, Rajasthan, which faced intense heat waves, and Jharkhand, where we saw the palm oil issue, labor issue come back again.
Are these non-payment linked in any way to these factors as well, or is it only over-leverage?
Yeah. Pranav, if you just refer to slide number nine, where you are absolutely right that in Stage 1 they have paid June installment or partially they have paid in June. We have written that subsequently they have missed their payment in July also. It is written on the slide number nine. And when we have checked the CB data also, they are quite leveraged and the number is six, seven lenders and beyond. Apart from that, the center meeting attendance is also very low on that particular group. And one other concerning thing which we have seen is they have defaulted with some of the other existing players where they have exposure.
Okay. Sure. I have more questions, but I will come back in the queue.
Yeah.
Thank you. Next question is from the line of Reetesh Poojary from ICICI Securities. Please go ahead.
Yeah. Hi, sir, and thanks for the opportunity. Sir, just two things from my side. One, on the clarification side. So when we are moving these customers from Stage 1 to Stage 3, how would ECL model give that flexibility? Because if the EMI account is not past 90 days DPD, how the ECL model will allow us to classify in the Stage 3?
We have discussed this thing with our auditors, and they have allowed us to move that customer because of the default coming into their credit bureau with other players which they have exposure with. Apart from that, the repayment which we have shown in June and July, that has also become one factor. Apart from that, the center meeting attendance, because largely these are the customers who were second cycle and above. They have a credit history with us. Still we were able to see that they were doing a payment, but slightly with a lag. We can just assess that and we can just discuss with the auditor to pass into from Stage 1 to Stage 3. Similarly, if you see in the last year, when we have done this movement in Stage 3 also in December quarter.
Yeah, that was when we called out the Punjab.
Then the ECL model does allow this subjectivity. Is that a fair assumption? Because let's say in one quarter, if you are recognizing this customer under Stage 3, despite bouncing only one EMI, and in next quarter, if another customer just bouncing one EMI, and if you continue to show under Stage 1, does that flexibility ECL allows?
No. ECL is an accounting model, and it gives the provisioning on that particular loan. As far as their customer, CB record is concerned, they will still be classified as Stage 1 or Stage 2, where they are. It is only a provisioning which we have shifted, nothing beyond that. ECL model gives you a flexibility to create more provision by moving from Stage 1, Stage 2 to Stage 3. Or even if a customer who was in Stage 3 and he has given me four payments, subsequently, we can move that customer to Stage 1 also to get an upgradation.
No, that is okay. I will take this offline. My next question again, on slide number eight, when we have given the customer base position. Fusion Plus 4, 5 and more than five is almost 20% as on March. As on Q1, if you can tell us what proportion of this customer base has already been recognized. Because when we look at the gross NPAs, it is still at 5%. Even if I assume, let's say the entire 100% is coming from this Fusion Plus 4 category, who in a sense could be termed as over-leveraged. What part of that is still left on the book as on June 2024?
Yeah. Because, Reetesh, the credit bureau has still not given the data. Once the data comes in, we will share with you. However, I think what you are assuming is that, okay, if there are customers which have more lending relationship other than Fusion, and all of them will be like this, I don't think that is the right supposition. It is basically, we have looked at geographies at certain pockets, certain customers, their behavior, and their credit history and their behavior with others. That is where this has come out.
No, of course. I mean, not everyone will default, sir, but I'm just trying to get a sense that if one is to assume that Fusion Plus 4 and more than 4 lenders will be having some sort of over-leverage. Then the incremental stress in Q1, ideally should flow from that pool. I'm just trying to get a sense. Anyway, my last question is on the credit cost part. Of course, we've been guiding at around 3% of a steady-state credit cost plus the overlay. Does that guidance still holds true? I mean, if I just have to strike off the Q1 numbers.
Right now, we do not want to say anything on this. I think what would be the credit cost, we have to just see how the Q2 pans out, then only we will be able to say anything.
Okay.
Situation is slightly dynamic and fluid, so we would not like to say anything. I think we would like to see the situation, handle this thing and then see how this pans out.
Okay. Okay, sir. Thank you and best of luck.
Thank you.
Thank you. Next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Thank you and good evening, everyone. Again, kind of circling back on an asset quality only. First of all, thank you for always guiding us well ahead of others, I would say. I mean, you've been guiding for something like this for the last few quarters, and probably you are among those few who are suggesting that what we are seeing today in the sector is because of higher customer leverage, and you've also shared data to that end. What I wanted to understand is, I mean, while there are other players in the sector who during the quarter attributed some of it to, I would say, elections, heat waves, and maybe even attrition. But while we acknowledge that over-leveraging is the main problem, I mean, don't you think that going ahead, even in 2Q, the things are not going to improve?
Because today we are talking about 55,000 customers who've moved and whose payment behavior is circumspect. Given the kind of leveraging that has happened in the sector, and again, referring to the earlier participant's question, given that almost 24% of our borrower base are having five or more loans, don't you think going ahead, we will continue to see more forward flows?
Yeah. I would first like to mention this and thank you. I think everyone has to appreciate that this MFIN has brought these guardrails and everyone has signed it because people felt that over-leverage is happening. So that I think, one effect one has to accept. Second is, you're right. So we have mentioned that some kind of these macro environments you mentioned in Q1, they may have accentuated, but all this is, we have seen it's more because of the over-leverage and any small disruption in customer's life, and if the customer is over-leveraged, this kind of situation happens where the customer livelihood gets impacted and thus he starts defaulting. So we have seen that. But as I mentioned to you, situation is slightly more transient and we are watching it.
Right now, not in a position to tell you whether the We are taking steps, and we are hopeful that it will improve. Also, overall, I think everyone is calibrating the growth. Once these guardrails are implemented and everyone starts doing that, you will see some kind of sense coming back and customer leverage going down. But also, we believe that we are an old player. We have the team, we have the system, risk, and everything. We are taking steps, as I mentioned to you. In 104 branches, we have stopped disbursement. So we are calibrating our growth also in all these geographies. We are not growing very fast. I can give you some sense here that, our 25%-30% branch expansion has happened over the last six to eight months. Also, our RO, the field officer rationalization has helped in reducing the burden by around 20%.
I think these are steps we have taken, and then we are also increasing our collection team, telecalling infra. I believe that this will start showing results. Also, I think in this case, we have been slightly more prudent, so that we could see some kind of trends and we thought this is something where we should call out early. I think we will be able to tell you in more clarity how things are moving in the next quarter. We would like to watch the situation in the next two months to really see what kind of improvement is happening and what is happening with the customer, how the flow rates are. You will have to wait for one more quarter. Door-to-door collection has also been a problem with this sector. We are doing lot of work on working with the clients on center meeting.
All that, if you remember, we have mentioned about it in the May analyst meet also. We believe that some of these steps will start showing results. Coming back to some of the customers where we are seeing more relationships have increased to a level where it is becoming concerning. We are taking steps there. We are engaging with those customers. Separate telecalling is happening, and a lot of steps are being taken to make sure that these things are arrested. We are still hopeful that though we have earmarked these customers in Stage 3, that maybe we will doing all efforts to make sure that we start recovering from these customers in the next two to three months. We will give more clarity in Q2.
Okay, sir. Just a small follow-up on what you just responded. There are two things that happen. One is, you over-leverage a customer and then that customer is not able to repay. The other thing that also happens is maybe the income of the customer goes down, or the income of the customer is impacted. Have you had a chance to do some analysis around, is there also an impact on the income of the customer?
Yeah. Look, in some of these geographies, because of the situation which happened in the Q1, this could be a reason. Again, I'm saying, we have seen in the past. Now monsoon should be good. There'll be more money. Elections are over. There will be more money in the hands of the customers. There were seasonal, some migrations, they should start coming back. I think all this will play out. We have to really be watchful. We will do these kind of analyses more, and we can share with you in the next quarter.
Okay, sir. And sir, just one last question that I had is, these steps that we have elaborated on slide number 11, actions taken by Fusion. Since when have they been incorporated, these actions that you have taken or steps that you have taken?
If you see, the disbursements calibration has already happened in July. We stopped disbursement in around 50, 60 branches last month. We have another stop in another 40 branches this month from 1st August. New customer sourcing criteria has been tightened from 1st August. The rationalization of customer handling at RO level has been going on. Incentive structure has also been aligned from 1st August. And collection team is strengthening, has already happened. We have added last month, 50 more people in the collection team. If you remember in the analyst meet, we mentioned that a very senior guy we have hired. He is also joining on 20th of August. And then we are increasing, more 100 people will be added in the collection team in this month, August only. So this is where we are in terms of the steps we have taken.
Okay. So sir, why I asked you this is, if you look at other peers, they had already calibrated their disbursements in last quarter itself. April to June, and to that extent, you should see their portfolios had not grown. They were flat to a minor decline. Why is it that despite being so prudent and early recognition, you chose to wait, let us say, until July or August to take these steps?
Yeah. So Abhijit, one, if you see our disbursement trends, they are very consistent. As I mentioned to you, that still there is a demand is very robust. We have actually calibrated our growth because if you look at the trends here, Abhijit, that the last six to eight months, we have added close to 25%-30% to our branch network. Even in the first quarter, we have added 100 branches, out of which 47 branches are split. Our calibration on the RO has been happening over the last four, five, six months. If I can tell you, in terms of number of applications which we are disbursing, the average is still hovering between INR 2 lakh to 2,15,000 applications per month. Keeping in mind that in the last six, eight months, the infra has gone up by 25%-30%.
But in spite of that, the number of applications has not gone. So already calibrations are happening, Abhijit. You have seen we have not changed in terms of ticket size. It is only 9%, 10% here and there. So that part is already happening. So what we are trying to do is, now we are looking at more branches. There the calibration can happen. But overall, I think in terms of our capacity, we can do even 25%- 30% more than what we are doing for the last two quarters. And we have been consistent. I would not like to say anything about others, but I think we are calibrated all the way. You can look at the number of applications.
Got it. This is useful. Like you, we are also hopeful that things improve from here on. All the very best to you and your team.
Thank you.
Thank you. Next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Hi. Thanks for the opportunity, sir. I have a few questions. One is, your total net slippage seems to be about INR 360 crores every quarter. What part of this came from Bihar and U.P.?
State-wise split. I can tell you, Bihar and U.P. are behaving very well. There are these slight elevation here and there, but otherwise, we do not have any such concern from Bihar and U.P. Raghav, the INR 350 crores of slippage is inclusive of INR 220 crores of shifting from Stage 1 or Stage 2 to Stage 3.
Right. My only purpose was to understand whether Bihar and U.P., how much are they contributing to the overall stress formation? That was the only point.
These 55,000 customers, Raghav, which we have moved, 95% customers are from these states which were highlighted.
Understood. Thanks. The second question is, more from a clarification perspective, but in terms of your funding arrangements, given that you have done a loss for the quarter and where your NPAs have reached, you do not anticipate breaching any of the covenants to the extent that there is a substantial increase in cost of funds or any particular funding line stops. Is that understanding correct?
Raghav, there is a breach of covenant on a gross NPA, but on the 90 plus, there is no breach. Having said that, the kind of a relationship which we are having, we do not think so that there would be any funding issue for going quarter. If you talk about like we are carrying some INR 1,600 crores of liquidity with the sanction and end up purchase INR 2,500 crores. I think that is good to go. We are not anticipating anything from the lenders. There are very few lenders where we have this covenant, and we are on top of the situation.
Understood. Just my last question, why have you increased your ticket size even this quarter despite seeing a higher stress formation? Ideally, what we understand is that given the controls that you would have put in place, ideally ticket size should not increase or probably it should go down.
Raghav, we have not increased the ticket size. Ticket size was increased previous quarter. This quarter, disbursement has happened more to our mature customer. That is why you see that happening. We have not increased any ticket size this quarter.
Fair enough. Thank you.
The breakup between the new and the existing, there the tilt is more towards the existing. That is why you see that it is looking like 46. That is the reason. We have not seen any.
Sir, just one last question. You have done a fair bit of provisioning in this quarter, and there is about almost INR 600 crore of GNPA, which is outstanding. Assuming a steady state ECL cover of 3.5%, do you anticipate that you may end up making a loss in this year, or you think you will be much better than that?
No, we will be much better than that. It will be much better than that. You will see an improvement happening in the next quarter, and then normalizing in the next year. It will be much better than that.
Thank you, that is all from me. .
Yeah.
Thank you. Next question is from the line of Shreya Shivani from CLSA. Please go ahead.
Yeah, thank you for the opportunity. I have two questions. Sir, the slide number NINE, I think it gives a lot of data, particularly about those 55,000 customers. Some of the states that you have mentioned, like Tamil Nadu and all. Do you think that the overlap or the over-leveraging is only happening because the customer has multiple MFI lenders, or are there more of these other lenders who are lending to the husbands of these women, and those are the bigger concern than the same woman going to five or six lenders? That is my first question. And second on the branch addition, are we going to pause right now? What is going to be the plan for that? Any color you can give around that?
Yeah. First, on the branch addition, you are right, we have added 101 branches. We have some more in the pipeline. Mostly, Shreya, it is basically the split branches, as we have been mentioning that branch reaches more than INR 15 crore portfolio.
Yeah.
We split that. That will add in. I think we already have 1,398 branches, another 40, 50 branches which are already open. Otherwise, we are done for this year. Coming to your first point. Look, right now, we have also seen that the retail overlap has gone up in these microfinance customers, especially if I look at the south, it's around 61%. North is still at 15%-20%. I am talking about overlap on our customer base.
Okay.
But you are right. There could be a situation where these households have got indebted. Look, we look at the overall indebted as per the FOIR. But it is early to say. Right now, as a sector, we can only control the variable which we have a control, which is as MFI and the banks and the small finance banks which are members of MFIN, everyone has agreed for this guardrail. So I think we have to still wait for next one or two months to see how this is panning out. And I am hopeful that this will, overall situation may improve because obviously, unsecured loans with the household overall, all the players, I am not talking about MFI, I am talking about other sectors. There already might be a regulation on the risk for weightage for unsecured.
Yeah.
And some of these other players which are not under the regulatory landscape, RBI is also trying to control some of these factors. So I think that should help in making sure that the customer does not get, or the household does not get overly pressed.
Okay. Just a follow-up on that. While we are all probably just focused on RBI making these commentaries on the lending rates of MFIs, for which I know Fusion as a company is probably one of the lowest rates out there. But maybe there could be some action from the regulator on this matter that you are raising today. Or has there been any discussion that you have had with the regulator on not just over-leveraging due to multiple MFI lenders, but also due to those retail lenders out there? Is that a risk going ahead, or have you had any such discussion with the regulator right now?
Can you repeat the question, please?
Okay. What I am saying is that most of us were probably concerned with RBI looking at lending rates of the MFI sector, right? But this over-leveraging of the issue, particularly with the retail overlap that you are talking about, has RBI had any communication with any of you all, or do you expect that this risk or a regulatory risk because of this factor is increasing for the overall ecosystem as such?
No, we have been highlighting through our MFIN association that-
Okay.
to control some of these entities which are not part of the regulatory landscape.
Yeah.
Otherwise, there's no such discussion.
No.
I think every company, everyone has to improve their risk management and onboarding, and if all the players come together, we will definitely make a lot of difference.
Okay, sure. This is useful. Thank you so much.
Thank you. Next question is from the line of Nidhesh from Investec. Please go ahead.
Thanks for the opportunity. Firstly, how are the trends in the collection efficiency on a month-on-month basis? Is it reasonable to expect that the trends have deteriorated through the quarter, and July was one of the worst months in terms of trends, or how are the trends? Specifically, if you can talk about current bucket collection efficiency, how are the trends on that?
Yeah. Just referring to the trends, if you remember that when we exited March in the previous quarter. After that, as has been discussed on the call already, the challenges that we have been looking at.
There has been moderation in the efficiency. April, assuming as what levels of about 96.6%, 96.7%. May was few notches down at about 96.2%, 96.3%, then June at about 96%. With our exit, as is likely mentioned at about 96.3%. July, we are seeing almost like a similar trend, looking at June exit numbers. There has been a moderation in the trend, yes, to answer your question.
Okay. So in July also it is broadly similar to what we are seeing
Yeah.
-then?
Yeah.
Secondly, what is the share of AUM coming from each of these geographies, Tamil Nadu, Rajasthan, Odisha, Jharkhand, and NP, perhaps?
Yeah. So in terms of when we look at contribution to our overall GLP. So Tamil Nadu contributes close to about These typically would be around Tamil Nadu contributes about 6%. Rajasthan about 12%. Close to about 25%-28%.
Okay, 25%-28% all of.
Yeah.
And then lastly, when we did an analyst meet, at that point in time also we disclosed customer leverage. And in that, as plus more than or equal to five is 6.4%. As + 4 is 10.5%. The numbers this time that we have disclosed are quite different from that. So Fusion Plus 5 and more than 5 is almost 14.5% now versus 6.4% in the last PPT. So why is there a difference in these numbers?
Which slide are you referring to?
Slide number eight in the current PPT and slide number 25 in the analyst presentation PPT, which you did in May.
We will just check, I think we are We will get back. I think we have similar, same slide, same numbers we have used. We will just check. We will send.
Okay. Sure. That is it from my side. Thank you.
Okay.
Thank you. Next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, sir. Firstly, thank you for the disclosures on slide number eight. One question on that slide. Can you share, as you have given this breakup of customers who are Fusion Plus 3, 4, 5, et cetera. Let us say out of the Fusion Plus 4 set of 9.6%, how many of them have already turned into NP? And so on for Fusion Plus 5.
No, we need to come back this, that how many have turned back to NP. We do not have a data right now handy.
Okay.
Welcome back.
The other way to ask the same question, what is, in your analysis, what has been a defining characteristic of the defaulting customer? What would have been a good early warning indicator to identify these customers?
One, if the customer has consecutively not made two payments, is something default. The second is customer is, in spite of regular follow-ups, twice, thrice, four times, you are not able to collect money, even if there is no intent of payment because, one, sometimes we have seen many customers, they make partial payments. If there is no partial payment also come in. Then customer is not coming to center meeting. Then when you look at the credit bureau, how is the customer behaving onward. Whether the customer is paying to others, then that definitely there is a problem at our end, and that is our follow-up or whatever.
If the customer is also defaulting with others, all these become a trigger point, and that is what we Because when we looked at the customers who have not paid even in July, that is where it became the trigger point, and then we started doing diving deep into some of these trends and looked at whether the customer has paid even some partial payment, then we looked at how is the credit bureau, what is the owe debt test. Broadly, we saw that these are all were our existing customers. It is not that there is a problem in sourcing where the customers are first cycles customer. 94% customers of these 55,000 customers are second cycle and above customers.
We looked at some of these data points to really. Again, I'm saying that it does not mean that we believe all the customer will not pay or anything. This could be a temporary, but we thought that these are the trends we should call out early. We are going whole hog to make sure that we collect from these customers. We will give you more status when we talk next time after our Q2 results.
Okay. Sir, but any rough sense you would have of how many of these customers would have slipped? Any ballpark, 20%, 40, 50?
No, I do not have any ballpark. I don't want to give any ballpark.
Okay.
Yeah.
Sir, secondly, on the attrition side, how is the trend there? Is it lower collection which results in attrition, or would you say it is the other way around?
Yeah, I think sometime it happens that when the customer, the boy has to go again and again door-to-door collection, it becomes tougher. The timings are, he has to spend more time in the field. A customer is refusing, and that's where that also we have seen that it becomes a trigger point.
The customer will say, or the boy will say, okay, I will rather do something else, because the conditions that he's going to the field, not able to collect payment or customer is not meeting or sometimes it becomes a thing. Yes, that also plays a role because if you, the customer, we have seen where the boy is going, is able to do collections and also that he's able to source customer, but when some of these things become tougher. That's where the company, we come in picture as a management. We understand all this, and then we put more seasoned people there. That's what we're doing. Some of these branches, we have shifted our seasoned field officers, seasoned branch managers who handle some of these situations.
I think these are things. I don't think this is something which we can't control or we take a lot of steps. I don't think that is where we are worried. We are doing everything to make sure that we engage with people more. I don't think that is something we can't control.
Got it.
In the August, we have seen Sorry, in the July, we have seen latter half of July, we have seen that at least that part is getting arrested.
Got it. Sir, just a clarification again on slide number eight. The data which you have mentioned here includes retail exposures as well, or only MFI exposures?
No, this is only MFI.
Got it. Okay. Perfect, sir. Thank you.
Thank you.
Thank you. Next question is from the line of Anurag Mantri from Oxpor. Please go ahead.
Yeah. Hi, sir. Good evening. A couple of questions from my side. One, if you can help with the data point, if you can maybe let us know your PAR numbers as of March and as of June. So like basically PAR 1 to 30, maybe 30 to 90, and 90+ is already there in the PPT. So if you can help with the earlier buckets, that will be useful. Secondly, just wanted to understand, basically when this over-leveraging that we've sort of highlighted as an issue and you shared the data. I mean, largely, I think what has been the path of this increase from March 2023 to March 2024? Has it kind of suddenly gone up or it's been a kind of a gradual increase over the year, basically?
I'm just trying to ask within the context that, could maybe proactive steps, could they have been taken slightly earlier or these increases happened very suddenly, and that's what has led to this. And a related question to the overleverage point is that I think, with the new RBI rules as to how lending should happen in the sector that came up, I think about a couple of years back, regarding the household income-based lending. In that setup, why has this become a problem? Because, I mean, isn't that framework supposed to make lending a lot more household income and the leverage based, basically? Isn't it supposed to be a lot more focused rather than the earlier set up where it is a lot more difficult to really assess the household incomes?
I will first start with your first question. You said that whether we could have done something proactively. You see, one, we have been calling out even when in Q2 last year, when Q3, when we talked about, we said there and there. In Q2, we mentioned about floods. We mentioned about that there could be a temporary pain. We have been saying this. Second, when it comes to the steps, for the last six, eight months, we have been rationalizing our field officer. If you look at our March 2023 or Q1 2024 numbers, our per field officer was managing around 555 customers. That has today, if you look at today, it has come down to 404. We want to maintain around 450 because in the last quarter, we have added new ROs.
They are under training, and they will be put up in the new branches or the existing branches. We mentioned that we are revamping our collection team six months back, and then we hired somebody who is joining on August. That we have been saying for even doing the analyst meet. Similarly, since the Reserve Bank of India new norms came in in March 2022, we were the only company which kept caps. We had caps. Today, when the sector will bring caps, it will not have any impact on our disbursements because we had caps from the day one, whether it is amount or whether it is number of lenders. That is what I am saying. It is not that. We have always been proactive. We have been taking all these steps. Even you look at the diversification, if you look at the state-wide concentration, we have district-wide concentration.
We have always been very proactive to make sure that we manage all these risks. This is something, and coming to your point, I think, again, I am saying this could be a temporary phenomena. We do not know. We have to wait for another two months to really see that. But it got accentuated in this quarter, and that is why we are coming and we are calling out for this 55,000 customers. This is about your first point. Now come to the, you were asking for the PAR numbers. So yeah. If you talk about PAR 60, this is with the adjustment. I am talking about PAR 60+. It is inclusive of the adjustment which we have moved from Stage 1 to Stage 3, 5.61% as on June 2024. As on March, it was 3.10%.
As far as PAR 30 is concerned, June 2024, it is 6.37%, including that adjustment, and PAR 30 as of March is 3.44%.
Got it. Do you also happen to have the PAR 1 to 30 data that will be shared?
No. We share only PAR 30 numbers.
Got it.
Always because it is more of some kind of transitory number customers. We always give PAR 30 numbers.
Got it. Fair. Devesh, just what I had asked earlier regarding the context of the over-leveraging, the new lending norms of RBI, any thoughts on that?
Yeah. Look, you are absolutely right that the new norms were actually meant for making sure that people do not do over-leverage. However, this whole strike rate, which was increased, because earlier if you see it was INR 2 lakh in urban areas and INR 1.6 lakh for rural areas household income, which became INR 3 lakh, and I think that is where there was a number of lenders capped. Then we have also seen the same customer being given loans under the non-qualifying criteria. That also has increased the overall leverage. There was a lot of liquidity last year. But I think now as a sector, we all are coming together for these guardrails, which I have been propagating since day one when the new guidelines came in in March 2022.
But I hope now everyone will follow that and everyone will come together for the long-term sustainability of the sector.
Great. Thank you so much for answering the questions.
Thank you.
Thank you. Ladies and gentlemen, we will take this as the last question for the day. I would now like to hand the conference over to Shreyas Pimple from JM Financial for the closing comments.
The time out and joining this call. Thank you so much.
Thank you, everyone.
Thank you. On behalf of JM Financial, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.