Ladies and gentlemen, good day and welcome to Fusion Microfinance Limited Q1 FY 2024 earnings conference call hosted by JM Financial. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during 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 Bhise from JM Financial. Thank you, and over to you, sir.
Thank you, Aman. Good evening, everyone, and welcome to the 1Q FY 2024 earnings conference call of Fusion Microfinance. First of all, I would like to thank the management of Fusion Microfinance for giving us the opportunity to host this call. From the management team, we have Mr. Devesh Sachdev, MD and CEO of Fusion Microfinance, Mr. Gaurav Maheshwari, CFO, Mr. Tarun Mehndiratta, Chief Operating Officer of the MFI business, and Mr. Deepak Madaan, Company Secretary and Compliance Officer. As always, we will first begin with opening comments from Mr. Devesh Sachdev and then open the floor for Q&A. Over to you, sir. Thank you.
Thank you very much, Sameer and JM Financial for hosting us. Good evening, everyone, and we are thankful for joining Fusion's Q1 Financial Year 2024 results conference call. I am here along with my colleagues, Tarun, who is the COO for MFI business, Gaurav Maheshwari, my CFO, Deepak Madaan, who handles investor relation and also Chief Compliance Officer. I would request all of you to please keep the presentation handy because I may refer to some of the slides. So, I will straightaway go to the slide number 18, please. We are off to a very good start in this quarter, where disbursements were more or less similar to Q4 disbursements. The AUM at the end of Q1 stands at INR 9,711 crore, which is 31.4% growth year-on-year from Q1 of financial year 2023.
We continue to remain focused on our business composition across states, maintaining positive traction in all our large state as evident from the Q1 disbursement numbers. If I take you to the slide number 32, as per our earlier guidance, NIM expansion continues, and it is 10.89% as on Q1 2024. We have guided in the past that there is still some scope of increase in NIM before it stabilizes. Our profit after tax grew 60.40% year-on-year to INR 120.46 crore, up from INR 75 crore in Q1 of financial year 2023. The ROA stands at 4.99%, ROE is at 20.21%. As per our guidance, we are confident of delivering ROA of around 4.25%-4.5% and ROE of 18%-20% on a sustainable basis. We were the first company in the sector which came out with a strategy to create extra provisions in the management overlay.
We want to build extra buffer for uncertainties. Management overlay now stands at INR 57.68 crore. In good quarters, we keep on adding to this buffer as we have done in this quarter. Our credit cost has very marginally inched up in this quarter because of two, three reasons. We have increased our coverage from 96% to 118% year-on-year and from 107% to 118% quarter-on-quarter. This time, you all know we have witnessed floods in some parts of North India after many years. This is not a normal occurrence. Let me assure you that we are hopeful that the credit cost will normalize in next two to three quarters as we deal with these issues in a very organic manner.
Our top five states today, Bihar, U.P., Odisha, M.P., and Tamil Nadu, have a concentration of 69.8% as of June versus 69% as of March and 74% as of FY 2017. We are confident of maintaining prudent composition as other geographies will start contributing more to our business volumes. If I take you to slide 20, which highlights our mantra for success, which is maintaining consistent growth with focus on fundamental prudence. If I summarize the same for you, it will very particular talk about our consistency in adding new clients. We continue to maintain our focus on orienting our field teams in alignment with our overarching strategy of diversification, organic growth by adding new clients to the portfolio.
We have a total number of 3.64 million borrowers as of Q1 of this financial year, registering a year-on-year growth of 25.5% and a quarter-on-quarter increase of 3% versus the last quarter, where the number of borrowers was 3.53 million. Staying on the same slide, within our portfolio, we continue to have a healthy mix of new and existing customers as reflected in our average ticket size, which is 42,400 as of Q1 versus 41,200 as of Q4.
Up only 3% outstanding for borrower, which is 25,800 versus 25,600. More or less, it is at a similar level. We had mentioned in the last call also that we slightly increased our first cycle ticket size because we had not done it in the last three years. Let me tell you that as we are becoming a more mature company, we are in mature markets, we are recalibrating our ticket size. We are looking at some geographies which are more mature, and especially for our mature customers. But I must assure you that any such thing, any such change, which will be done, will be done, one, keeping in mind our risk, our prudence, and it will be very organic.
A strong validation of our focus on borrower addition is that customers unique to Fusion as of March 2023, was 33% as per data of the Credit Bureau on our portfolio. Our goal always has been to maintain a long-term view on building our business, our consistent approach, prudently balancing growth and risk, adding on our network. We are continuously strengthening our processes, human capital, digital capabilities, and this shall help us to deliver sustainable growth subject to market conditions. Thank you very much.
Thanks, Devesh. Good evening, everyone. Interest income has increased by 6.27% on Q-on-Q basis and 45.43% on year-on-year basis. As far as the total income is concerned, it has increased to 6.16% on a Q-on-Q basis and 53.36% on year-on-year basis. The fee and commission income has increased by 109% due to increase in cross-sell. INR 7.69 crores in Q4 FY2023 to INR 16.10 crores in Q1 FY2024. Our annual cost of fund has increased by 16 bps against Q1 FY2023, whereas our marginal cost of funds increased by 7 bps on Q-on-Q basis. The annual cost increase has been passed on to the customer. For FY2023-2024, our efforts would be to maintaining the same level of cost of borrowing. As of now, interest rate environment still remain uncertain. The operating cost has increased marginally by 5 bps on Q-on-Q basis.
In this quarter, we have opened 17 branches pan-India. Cost to income has marginally increased by 9 bps from 36.18% Q4 FY2023 to 36.26% in Q1 FY2024. It would largely be the same for FY2023-2024. The pre-provision operating profit is INR 235.39 crores as on June 30th, 2023, which has increased of 96% compared to last financial year. It has increased by 6% from Q4 FY2023 to Q1 FY2024. The company has provided impairment of INR 75.08 crores in Q1 FY2024. We have done write-off of INR 59.36 crores in Q1, which is 0.61% on closing AUM. Due to this write-off, we have de-recognized the interest income amounting to INR 19.38 crores in this quarter. The ECL as on June 2023 is INR 328.38 crores, which includes INR 57.68 crores in management overlay. We have provided additionally INR 6.43 crores as management overlay in this quarter.
Credit cost on closing AUM is 0.86%, but if we consider without management overlay, it stands at 0.79%. Restructured portfolio as on June 30th is INR 7.35 crores, which is 0.08% of the portfolios. The company has done direct assignment amounting to INR 343.11 crores in Q1 FY2024. The outstanding as on June 30th, 2023 is 10.40% of the closing AUM. We would like to continue the same subject to market condition. Thank you.
Should we open the line for Q&A, sir?
Please.
All right. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Shreepal Doshi from Equirus. Please go ahead.
Hi, sir. Good evening, and thank you for giving me the opportunity. My first question was pertaining to the collection efficiency. If we look at that is still at 97%, which is still lower than where we are seeing most of the peers also operating. What explains this?
Hello, everyone. Hi, Shreepal. This is Tarun. See, our collection efficiency obviously is a huge leading indicator for how the portfolio performance is anticipated. When you compare it with the previous two quarters, this has become better at 97.3% for the overall portfolio. What we also take confidence out from is that, A. When we look at our top five states like Bihar and Uttar Pradesh for us are at levels of about 99%. We had always discussed that at sector level also there were states like Madhya Pradesh, Tamil Nadu and Odisha. In our case, we have seen significant improvement in collection efficiencies in all these three states. For example, for us, Odisha today, from a level of about 93% is at about 97%. So is Madhya Pradesh, from a level of about 93.8% to about 97.2%.
Tamil Nadu has also shown substantial improvement from 93% to about 97%. We are very hopeful that going forward, all these states which have shown improving trends will also add to the overall collection efficiency performance and we will see this gap actually being nullified and probably being at par as to what you just kind of mentioned as your observation about the sector level efficiency.
Sir, even on provisioning front, our credit cost during this quarter was 3.2%, which is, I mean, I understand there is management overlay that we have as a cushion. But what is the guidance for this year and what is it towards? Because during this quarter also, we have taken a write-off of close to INR 60 crore. Is this the end of the COVID-related, or is this towards the new book that we have created over the last couple of years? From that, is this pool coming from? If you could explain.
See that in the collection efficiency slide, there is a breakup of the pre-April book and the post-April 2021 book. Still there is a INR 68 crore of portfolio which is left behind. As Devesh has mentioned in his opening remarks, the normalized credit cost would be seen post two, three quarters. I think from December onwards, you will see that the older portfolio will go out from the portfolio, and you will see the normalized credit cost. This credit cost as you are extrapolating for 3%, but it is largely what Devesh has given in his opening remarks that...
Hello? Hello. Hello.
Shreepal?
Yes.
Yeah. Sorry, you were not able to hear the management?
No, the management was not audible.
Are we audible now?
Yes, you are.
Yes, sir. Thank you.
Yeah. Largely, if you see that from the collection side, there is still an old portfolio, which is INR 68 crore, which is 0.7% is left behind, which is going to take another quarter or so. You will see a normalized credit cost on the new portfolio from December onwards. Slightly, as Devesh has mentioned in his opening remarks, that the credit cost is, because of two, three reasons, slightly looks elevated, but you will see that the guidance for credit cost will come in the next quarter. We are reviewing internally that how it is going to be. But the guidance for the older portfolio is like that in December quarter, you will see the normalized credit cost.
Got it, sir. Last question on the portfolio yield. What is our incremental disbursement yield and what percentage of our portfolio could get repriced in the next, say, six months as part of the renewal?
Yeah. We had mentioned in the past also that under the new pricing guideline, the rates were changed in May 2022. We also mentioned that you will see the NIM actually expanding in the next two quarters also before it stabilizes. It is in that section only. You can see more or less, the overall, it's a 17-month kind of asset which stays on the book. If you take it from May, you can see, I think in the next two, three quarters, the whole churning will be done by that time, and most of the portfolio will be at the new price.
Got it, sir. Thank you so much.
After that, we had done-
Yeah, sorry.
Recently also some price change, which Gaurav mentioned. But I am just talking about the major change which happened in May 2022.
Okay, sir. Thank you so much and good luck for the next quarter, sir.
Thank you.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi. Thanks for taking my question, and congrats on the quarter.
Piran, your line is breaking. Can I request you to come in network area or use a handset?
Yeah. Is it better now?
Yes.
Okay. Yeah. Thanks.
Clearly better now.
Okay, great. Thanks for taking my question, and congrats on the quarter. I just wanted to understand now, there are few corporates that have called out a higher level of indebtedness in rural unsecured loans. Just wanted to get a sense of how you all are seeing it, and if you could share some data points. For example, what percentage of your customers have more than INR 1 lakh outstanding at a system level, not just with you all. Something like that would help. My second question is, just conceptually, it may not be applicable today, but maybe three, four quarters later, when cost of funds starts going down due to repo rate cuts, will you pass it on to borrowers or do we see spread expansion then?
Piran, thank you. I will first take your first question. You said on the unsecured loan, especially in the rural areas, there is a level of old debtness or a high level of debtness, which is happening, which has been called out by some corporates. I will first give you data. The customers, which are our customers, the last portfolio cut which we took from the Credit Bureau, having a loan which is more than INR 1 lakh across current balance, it is hovering around 20%. 20% of customers have loans which are more than INR 1 lakh. The second point was that customers having more loans, they are not having that. Still the unique customers are around 33%, 34%, with other one loan with us is around 30%, two loans with us is again 20%.
Customers having more than four or five loans is just 2.5%. We have not seen retail overlap is still 15%, 16% in our customer base because we being a rural MFI. Yes, that is why, Piran, we mentioned that we are very calibrated. Today if you see, even for a mature customer, the highest loan which we give is around INR 85,000, INR 90,000. We have not even crossed INR 100,000. If you look at the sector, I think everyone does loans more than that. We are also looking at it that how we can, especially for our mature customers. Other thing is that, if you remember, last time also we mentioned that customers which are maturing need a larger loan.
Those customers will be serviced by our MSME team, where the branches are now getting opened the similar location where we are present, because that team has a better understanding of cash flow and they will do it with a certain kind of collateral or some level of security. Right now we do not see any such pain in any area broadly. There's some disruptions because of the floods. We are continuously look at this and we will continuously monitor all this thing and we'll be sharing some of these cuts with you for every quarter.
Got it. Thank you. On the other question?
On the question of if the interest rates go down, yes, I think, look, I have mentioned this many times that when we look at NIM or we look at ROA and ROE, we keep two, three things in mind. One is definitely what kind of ROA and ROE we want to give to the shareholders. We look at the customer also and look at the spirit of the regulation from the regulator point of view. We will be very measured wherever we think that if we have the kind of NIM we want to maintain and kind of ROA, ROE we are able to give, then definitely we would like that if anything more than that, we will definitely like to pass on to our customer.
That's the spirit because customer definitely we have to keep in center, and the regulator is also very, very cognizant of some of these things. We are, as a responsible organization, would like to maintain a balance between all the three stakeholders.
Got it. Just one last clarification. Your pre- 2021 portfolio of 0.7%, 0.8%, is this the entire portfolio or is that some already in stage 3 and not part of the 0.7%?
This is already a part of stage 3.
The 0.7 is in stage 3. Basically 2.5% of stage 3 is basically from the post 2021 portfolio.
No. Piran, we need to slightly dig deeper. We have to compare with what is my PAR 90 plus number, because gross NPA includes your accrued interest on stage 3. If we are talking about 68 crore as a portfolio, it doesn't include the interest on that. We need to have an apple to apple comparison. Against 68 crore, what is my PAR 90 portfolio number? If we carve out that, it goes below 2%.
You are saying your PAR 90 of your post 2021 portfolio is sub 2%?
Yeah, absolutely.
Got it. Okay. Makes sense. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Renish from ICICI. Please go ahead.
Yeah. Hi, Devesh and team, and congrats on a great set of numbers. Sir, just two questions. One on the fee and commission line item. That particular line item has been growing steadily on a sequential basis. Can you please throw some light on what is driving that growth on the fees and commission line item?
Renish, this is largely because on the cross-sell in this quarter, we have increased. We have sold certain of our existing products to our existing customers, which is largely on the requirement on the monsoon, like a tarpaulin or mobile phone, we have slightly more focused on. There is a seasonality to it, because now this year we have seen a lot of monsoon across India. Being pan-India, so we have to use our network. Apart from that, if you want to see, in this quarter also, you will see mild an attraction into this quarter. But for a whole year, this is not going to be an exceptional scenario. This is going to be as normal as it was.
Got it. Whenever we do this cross-sell, it is being funded by us only, or this is, let's say, the cash given by the customer?
It is a combination. There are also cases where the amount of the, like for example, you are doing some inverter bulb or something where the amount is too low, customer pays also. But yes, wherever the amount goes beyond INR 1,000, definitely it is getting funded. We are not bundling it up. We are not very aggressive on this thing. We are very calibrated and looking at whatever the customers require. That is how we look at it.
Got it. If I had to assume then, this is not basically a strategic focus, but this is more to retain the customers?
Absolutely.
Got it. S ir, secondly, again, circling back to the credit cost on item. When we look at the credit cost, remaining stick at around 3%. At the same time, we are also creating a management overlay, of course, given the strong operating performance. But then why not writing off the portfolio and clean up the balance sheet, instead of creating a management overlay?
There are two things. One, we are doing it very consistently. I remember last time also this question came from Rajiv Mehta. W e mentioned that our current write-off policy allows us to write off only after 3 65 days. I also mentioned that this was discussed in the last board meeting, which was our March numbers board meeting.
This board meeting, which happened yesterday, we have the policy to write off after 270 days has been approved.
Got it.
Yes, we will be looking there.
Got it. I think this is very helpful, sir. Just last question. On the growth side, of course, our growth has been moderating on year-over-year basis, but is still strong at 30%. Any good guidance would you like to share, sir, for this year?
No, I think, Renish, we mentioned it last time, that we will be calibrated, but wherever the sector is growing, we will be at least equal or more than that. You can read it that even in a quarter, which is normally a very lull quarter, our numbers are more than even what we did in Q3. I will stick to the similar stand in which I have taken. But overall, we are looking at a good momentum, and we are very confident of that whatever is the industry average, we will be either equal or slightly more than the industry average.
Got it, sir. Thank you, and best of luck for coming quarters, sir.
Thank you.
Thank you. The next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah, sir. Hi. Congrats on very good numbers. Sir, the first question is on the slippages in the quarter. If you can quantify the gross addition in the NPA bucket. You spoke about the flood impact. What percentage of slippages came because of floods? Whether we see more slippages coming from floods going ahead?
Yeah. Rajiv, look, what we looked at is that when we look at the overall, in the previous question from Piran, Gaurav mentioned that the 90-plus is less than 2%.
If I do a breakup of that, what we look at it is that 40% is coming from some of these states where there is a, two, three states where there has been a flood. Also, let me share with you, though it is too early, but that is what we said that this quarter, because there is an impact is still continuing. Rajiv, we handle these things very organically because, in these situations, you have to be with the customer. You cannot be pressurizing the customer. You do not want to create a pressure cooker situation. You work with the customer. We are working with the customer. We activate our CSR program. Let me tell you, huge relief work we have done. Whenever we meet or speak separately, we can share with you. Huge relief work is happening in some of these geographies.
As we mentioned, we would like to wait for next one or two months, and after September, we will have a more clarity how this is panning out. We are also reorienting our strategy in some of these geographies, in some of the branches, not doing fresh customers, only looking at the existing customers. Because we are used to having floods in Bihar and some parts of Odisha for last many years. The teams are also oriented to handle some of these things. This is the first time these geographies
Have faced this situation. But overall things looks to be in control. I think, as I mentioned earlier, we are very confident of normalizing it, and we will give some guidance around it in the next quarter.
Sure, sir. S ir, when you talk about your PAR 90 number being 2% on the new portfolio, how does it stack up versus the industry PAR 90 number on this new portfolio? Are we better, or are we the same level?
Sir, Rajiv, industry PAR 90 numbers, broadly, if you look at state by state, at the time that we are discussing this, we do not get published updated data. Point number number, I think the leading indicator there is for the bigger states. So for every finance company, there is a set of states which are larger, which contribute to the portfolio in a significant manner. We have been stacking up, like we covered last time also, much better than the industry from a leading indicator standpoint. We look at 60 plus numbers and we look at collection efficiency. Like we mentioned earlier, Bihar, Uttar Pradesh for us. Now, there has been significant improvement in M.P., in Tamil Nadu, by close to about 4%-5% percentage points in Odisha. Bihar continues to be at 99%, U.P. continues to be at 99%.
Definitely, we stack up equal or better in our significant states. S o really that is how we would like to compare it in the absence of updated, published data that we get in the public space.
Got it. Sir, just one last question, sorry for one more. If you can give us your portfolio mix from a borrower vintage perspective. If you can break your AUM from a borrower vintage perspective, and what will be our borrower retention rate for the subsequent cycle, typically?
Let me give you a kind of a top-level analysis here. Let me just look at the branch vintage to start with, and typically, branch vintage will also be a good tracker of a borrower vintage. Branches which is greater than three years of existing with me, typically are, let's say around 53% of my branches, 54% of my branches. T hey contribute close to about 64%-67% of my [audio distortion]. If I look at this number, like we covered in the last call, that we have been very consistent in opening up branches even during COVID times, right? We have a very good mix of branches which are greater than three years now.
Out of 1,100 branches, we also have a very good mix of branches which have been opened over the last one and a half to two years, which will now start kind of giving us the kind of productivity levels that we've seen from our vintage branches. Just to answer your question specifically, greater than 3-year branches, which means largely customers with us of greater than three years vintage contribute to about 53% in terms of numbers and in terms of portfolio closer to about a 65%-66% level. T he retention ratios are hovering between 70%-72% for us, Rajiv.
Got it, sir. Thank you so much, and best of luck.
Thank you.
Thank you. The next question is from the line of Darpin Shah from Haitong India. Please go ahead.
Yeah. Thanks for the opportunity. Sir, just first to clarify, you mentioned that only 2.5%-2.5% of your borrowers have loans from more than four or five lenders. Is that right, sir?
Yeah.
Okay. Now, the thing is, when we look at the industry data-
2.1%.
Sorry?
2.1%.
Okay. Thanks. When I look at the industry data, I know number of borrowers which have more than four lenders in the state of Bihar has gone up from, say, sub- 4% in June 2021 to almost 9% in March 2023. So definitely there has been increase in competition. How are we trying to protect our turf in the core state?
Yeah. I will partly answer it and let Tarun answer the second part. But first I'll tell you that when this harmonized guidelines came in and the two MFI rule was removed, we still have a number of borrowers rule. We do not fund our existing customer where relationships are more than five. So that is the reason that we do not have borrowers which have relationship. But still, if the borrower builds relationship after taking a loan from us, next time we don't renew that. So we have a clear guardrail as far as the number of lenders to a borrower is concerned. So we are more prudent in that context. But I'll let Tarun handle how we are trying to protect the turf.
Also, yes, just adding to what Devesh said, Bihar, of course, has been one of the better performing states in the sector over the last few years. Now, I think what really makes the difference for us is, A, a very well-entrenched network. So we have close to now about 142 branches in the state of Bihar, and we have covered it pretty well. But also the fact that we have experience of cycles in Bihar, and we have a very well-entrenched team there. So typically, if you look at stability of the team, I think that really makes a lot of difference. O bviously goes on to say here that the culture towards microfinance for the people of Bihar as demonstrated by them has also been a great enabler.
This coupled with what Devesh just mentioned as a guardrail that we've kind of built internally for us which essentially is not necessarily there with others as well. I think we are today very confident of how our portfolio continues to behave in Bihar, and we have seen this very closely during the COVID times and even post-COVID. Al l our leading indicators are tracking very positively.
Okay. Thanks for this. My next question is on the concentration of portfolio. The top five states gradually have been increasing for last couple of quarters. When do we see the other states contributing meaningfully in the business?
Yeah. I think what we believe is that in the next three to three quarters, after three two, at least by end of this year, you will see either it is stabilizing or going down. That's our effort.
Okay.
Yeah.
Last thing is, if you can quantify the 90 plus in our key states, if possible. Say Bihar, U.P., Tamil Nadu. If you can quantify this.
Five states. Yeah. Just a minute. Just give one second, please. I am just looking at it.
You wanted this in. Can I cover this for you in terms of percentage?
Yeah. Percentage will be fine. Thank you.
Yeah. In the state of Bihar, as of June 2023, our 90 plus is about 0.7%.
Okay.
In the state of Uttar Pradesh, it is close to about 1%.
Okay.
In Odisha, it has significantly come down to about 2.8%.
Okay.
In the state of Tamil Nadu, which is also amongst our top five, it has again significantly come down to levels of about 3.5%, 3.6%. In the state of M.P., again, it is closer to a 3% level.
Sir, if you can just explain one last question on this one. When I look at the industry numbers, which are for March, for the state of Tamil Nadu and M.P., our numbers are significantly higher. If you can just explain this in detail, why it is so.
No. I am sorry, I am not having the industry's published numbers for Tamil Nadu and Madhya Pradesh with me on the 90-plus level.
As on March, Tamil Nadu was at 0.9% for 90 plus and M.P. was at around 1.4%.
Yeah, I would have to refer back and I would be able to only give you an answer once I am able to dissect the comparison.
Fair enough, sir. Thank you very much for this. All the best.
Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, this is Abhijit. Am I audible?
Slightly low, but yes.
Is it better now?
Yes. Go ahead, please.
Yeah. Sir, these are two questions on things that you already shared on this earnings call. Could you please explain your write-off policy once again? You talked about earlier having 365 days and in your board meeting yesterday, it has come down to 275 days. Just explain that once again.
The write-off policy was that when the days passed due is more than 365 days, then only we write off from the book, which has now been changed to 270.
Got it. So essentially, sir, this INR 68 crore of pre-March 2021 portfolio that you had, these are all people who've been paying and that's why they've still not crossed 360 days, and that's why they've not been written off yet?
Abhijit, what is happening, there is a recency to each customer to the tune of, if we look at the range of INR 500 to maybe INR 3,000 in last six months. That's the way it is not being considered into write-off.
All right. The other thing I wanted to understand is, again, you shared during this earnings call that after you increased your lending yields back in May 2022, you have again increased the yields once again. So if you could just explain what was the quantum of that increase and when was that done?
As in the opening remarks, we have said that we have passed on this increase to the ultimate customer. As we see that there is an increase in the annual cost of funds, we have passed on near about 40 bps to the customer. It will be starting from July onwards. 7th July, I would rather be very precise. It will have obviously incremental impact on the incremental portfolio which we are going to lend.
Got it. Essentially from July 2, 2023, you have increased it by another 40 basis points.
Yeah.
That repricing benefit as even the loans originated between May 2022 and June 2023, even they will get that benefit if and when they get repriced.
Yeah.
Got it. Sir, just one last question. Thank you for patiently answering my questions. Just one last question. In addition to floods and you have already shared that maybe after the end of the second quarter, you will be in a better position to guide for credit costs for this year. But in addition to the disruption that you are seeing or slippages that you are seeing because of these floods, are there any near-term risks that worry you?
No. I do not think any near-term risks are worrying us. This is a business, this is operating risk is always there in this kind of business. You need a lot of human capital. Keep on building human capital is one aspect. Otherwise, I do not see any risk. We are strengthening, as I mentioned, we are strengthening our risk management, looking at portfolio cuts, looking at customer behavior, orienting our team accordingly. So yeah, I do not see any other big risk or anything which is worrying us.
Got it, sir. This is very good. Congratulations and best wishes to the Fusion team.
Thank you.
Thank you. The next question is on the line of Jignesh Shah from InCred Capital. Please go ahead.
Yeah, hi. Sir, thanks for the opportunity. I had a couple of questions, but just quickly. Now you say that we are seeing an increase of top four states or five states having a concentration of roughly 69%. You are saying that during the next couple of quarters, you will see that gradually easing off. So which are the new states which you think or which you are exploring, which will be having a relatively superior growth? Can you give some idea on that?
I will try and answer your question in two parts.
Like I mentioned to you, we also have a list of what we call significantly sized states. Other than U.P. and Bihar, we have Odisha, M.P., and Tamil Nadu. But other than that, there is Rajasthan and there is Gujarat and so on and so forth. What we have seen is that, like you mentioned, there has been a consistent momentum also built in other states other than not just the top two or three, but other states on a quarter-on-quarter basis. We have also mentioned, like we covered in the last call, we have made forays into Karnataka. That is a new geography for us. There was a favorable order passed for A.P. and Telangana, and we are also kind of positively looking at that.
This year, with these three states, and these are significant potential states in the entire scheme of things, contributing and the ones already existing also building momentum, not just Bihar and U.P., I think what Devesh mentioned, I think we should be able to kind of stabilize like we have always been saying, and also look at the shift in terms of concentration maybe towards the end or the beginning of the next financial year, as was mentioned earlier.
Understood. That is good. Secondly, though I agree that we have not seen the ticket size rise last almost like three years, but last two quarters, we are seeing a bit of rise happening along with obviously customer additions, and that is what AUM pool is coming up. What is, at this point of time, an ideal ticket size that you are looking up to? Around INR 42,000.
Correct.
Up to what level you would be comfortable with? I know that it will be different from state to state and all. What is an average ticket size that you would be comfortable with?
Yeah. I think one, if you see, we are still below the average ticket size in the sector. We are not very aggressive or I am saying as a strategy to not do multiple loans. If you look at both the factors, and in many geographies we are maturing. Our highest ticket size, as I mentioned, is still less than INR 1 lakh. Coming very specific to this thing, I think, we will see that at least 10%-12% growth from where we are right now, this year. Then we will take a call. We are around INR 42,000 on average. This may move to around INR 46,000, INR 46,500, INR 47,000. I do not think this will go beyond this this year. Then we will take a call depending on the customer requirement, depending on the economy, depending on the paying capacity of the customer.
All those factors will be kept in mind when we really give you any guidance around it. But right now we would like to make sure that overall there is not more than 10%-12% growth from here in the next three quarters.
Understood. Just lastly, I understand that there have been a bit of a spike on the credit cost front, obviously adjusting for your management overlay as well. We are seeing that next two quarters, we probably will see a bit of rise and bit of elevated levels only. But what is an ideal, this is something probably new for me, but what is an ideal credit cost you are looking for going forward? I mean, adjusting for this rise, but what will be an ideal credit cost that we should be assuming, say, for the full year? Not FY 2024, but overall in general, what is your comfortable credit cost level?
Looking at, I have mentioned in the past also that, yes, after how the asset class has matured, there is a competition, customer has also, ticket size have gone up and everything. Now with the pricing flexibility you have, and keeping in mind it's unsecured business, I think ideally, I would like that the credit costs remain anywhere between 1.5% to 2.25%, up to 2% kind of thing. Because you have the now capacity to really, because keeping in mind this is unsecured. I think that is what and if you're still able to protect your NIM, ROE around 4.25% - 4.5%. I think this is a good business to be.
Understood. Just asking one data building point, probably I missed it. Have you shared the slippage number for the quarter or, if in case I missed it? What is the incremental-
We have not provided any incremental slippage data separately.
Oh, okay. Understood. That's helpful. All the best. Thank you so much.
Thank you.
Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.
Yes. Thank you for the opportunity. You said that there are these ticket sizes increases which have happened. One obviously would have been in the vintage customers, but the geographies like Tamil Nadu, Odisha, where we have seen relatively higher delinquencies for us. Are we increasing the ticket sizes over there as well? Or there basically we are taking more of a cautious approach, first to basically bring down NPAs and then only look at increasing ticket sizes?
Good question, Anand. The point is like Devesh Sachdev mentioned earlier as well, last time we increased actually, ticket sizes was some time ago. Even when you look at our quarter 1, which has just passed and even the previous quarter, you will see, as compared with industry data, we maintain a very significant gap. Because that kind of a gap also matters a lot when you're going with your offering to the customer.
But I think what we have been able to balance it out with is a very consistent approach of diversifying our coverage strategy, which gives us very many unique to Fusion and customers with, let's say, one trade and so on and so forth, where I think, based on the customer's requirement and our understanding of the customer's household status, we are able to give them the right or the optimal level of ticket size. Coming to evolved markets like Tamil Nadu and Gujarat, you see, Tamil Nadu historically has been at a level where the sector has seen, unfortunately, I think post-COVID Wave 2, and then after that, due to some of these natural events, I think Tamil Nadu portfolio had a little bit of a challenge.
But I think our strategy always has been to resolve our people's issues in terms of their ability, liability, which is hit organically, and which is what we still continue to do. We have seen, like I mentioned to you earlier, significant improvement in our portfolio collections in Tamil Nadu and so also in Odisha. So now when we, next time when we take a call, I think we will definitely take into cognizance pockets as to how they are behaving, how they have behaved, and typically, what were the contributing factors to that behavior. Wherever we see it was a factor which was more internalized to the community or the pocket or the district, I think we will take a call accordingly. But we will cross the bridge really when we come to it.
Like Devesh mentioned, we currently, we are at that level of about 42,000, and it's been consistent with how our strategy has been over the past few quarters.
Also, I would just like to add here, when we talk about ticket size, let's say for example, I'll come to the first cycle. If you remember last two calls, we had mentioned that we will increase the first loan cycle from 30,000 to up to 40,000. But if I give you data of June, my average ticket size for the first cycle is still 37,500.
Correct.
The point we are trying to drive there is that it is up to INR 40,000. Depending on the geography, people may still do INR 30,000 loan, INR 35,000 loan. Similarly, when I talk about ticket size, if I say, okay, for a particular cycle you can give up to this, it does not mean that you have to give that only. The teams there make their own judgment that, okay, looking at the geography, looking at the customer behavior, looking at the credit overall quality, the teams then say, okay, even though we can go up to X, but let's still remain X minus 5% or X minus 10%.
Right. Secondly, you said that you have a 90 DPD, somewhere about 3.5% in Tamil Nadu. But when we are actually comparing with industry, because I think industry has a different write-off standard. If I am not wrong, some of the players have a 370 in the write-off standard, whereas you were somewhere at about 365, right? I think comparing the number directly with the other players doesn't make sense, right? Because if you had also written off earlier on, then possibly the 90 DPD number for you would have been lower. Is it correct?
Yeah, this could be one factor, but we have to still look at the data, but you are right. Look, there are two factors. One is accelerated write-offs. Second is that if you want to handle the situation more organically. I think these are, in my view, are the two reasons that we handle it more organically. But yes, we have to look at the data. But we are improving. Let me tell you, it went as high as 5.30, if I talk about last year, and then now it has come to something like 3.6.
Organically it is improving, and we will hopefully, I can tell you, especially in some of these geographies that when we will talk about September, this number will look better as far as Tamil Nadu is concerned.
Thank you. The next question is on the line Sanket Chheda from the DAM Capital Advisors . Please go ahead.
It is DAM Capital. Sir, my question was that, do we have the collection efficiency number for July?
No, sorry. We will not like to share that.
Okay. The second question, we alluded that we have a 99% collection efficiency in the state of Bihar and U.P., which are our biggest states. Then, in Tamil Nadu, M.P., and Odisha, we have reached closer to 97%, and our total collection efficiency is also 97%. Which are, say, couple of states wherein the collection efficiency is below 95% or the lowest collection efficiency?
You see, like we mentioned earlier, there were some states which were registering a lower efficiency. But typically in all our states, we have seen significant improvement. However, to your specific point, let me tell you that in Haryana, where we saw prolonged challenges right from farmer agitation to parts of wave 2 COVID and then looking at recent unexpected rains in the month of June, and so on and so forth. That state for us is typically at a level of close to about 93.9%, close to about 94%. Similarly, there are some other states where we have seen improvement but are a bit low like Punjab.
Punjab again with Haryana was one of the states which bore the brunt of farmer agitation and then some of the other challenges, including now again rains and in the last weeks of June. We have seen improvement in these two, three states as well. But we think that given what we are seeing as traction on a regular basis, we are confident that even they will start contributing better to the overall collection efficiency number. Bihar and U.P. continue to be at levels of 99%. Typically there has been no letup really in that. They continue to drive the overall efficiency.
Okay. Sure.
I think on this elevated freight cost and our comment on the floods, I can understand that some people may think that the floods came in July or June and how is this impacting the June number. But I think primarily what is happening is there are customers who were in the 60 to 90 bucket and they were paying. This kind of customer cannot pay the full amount. Those customers have flown. I just wanted to— 10 to 60 customer or 60 to 90 customer has flown to the next bucket. That is what I wanted to clarify.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to Mr. Sameer Bhise for closing comments. Thank you, and over to you.
Thank you everyone for joining this call today evening and thank you to the management of Fusion Microfinance for giving us the opportunity to host the call. You may now disconnect your lines. Thanks a lot.
Thank you everyone. Good evening.
Thank you very much. Ladies and gentlemen, on behalf of JM Financial, that concludes today's call. Thank you all for joining us and you may now disconnect your lines.