Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
Fusion Finance Ltd (NSE: FUSION) Q4 2026 Earnings Call dated May. 18, 2026
Corporate Participants:
Smit Shah
Sanjay Garyali — Chief Executive Officer
Krishan Gopal — Chief Finance Officer
Analysts:
Abhijit Tibrewal — Analyst
Unidentified Participant
Viral Shah — Analyst
Rajiv Mehta — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Fusion Finance Limited Q4NFY 26 earning conference call. As a reminder, all participant line will be in the listen only mode and there will be an opportunity for you to ask question after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchdown four. Please note that this conference is being recorded. I now hand the conference over to Mr. Smish Shah from AD Factors PR.
Thank you. And over to you sir.
Smit Shah
Thank you. Good morning everyone and thank you for joining US on the Q4FY26 earnings conference call of Fusion Finance Ltd. We have the company’s senior management team with us on this call. Before we begin, I would like to remind you that certain statement made in today’s discussion may be forward looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Q4 FY26 investor presentation that has been uploaded on the stock exchanges and the company website.
I now hand over the call to Mr. Sanjay Gariali, MD, and CEO Fusion Finance Limited to begin the proceedings. Thank you. And over to you sir.
Sanjay Garyali — Chief Executive Officer
Yeah, thank you. Good morning everyone. Thank you for joining us today for Fusion Finances Q4 and full year FY26 earnings call. FY26 was an important year of learning, testing and institutional building for us at Fusion. During the year, we prioritized portfolio quality materially, strengthened our credit guardrails, invested in collections, infrastructure and technology, and sharpened customer selection across both MFI and MSME businesses. At the same time, we gained far greater clarity on the operating segments and the customer profiles where we believe the business can scale with stronger portfolio quality and better productivity.
This gives us the confidence that the growth we are now seeing is sustainable, operationally stronger and backed by better execution discipline while also positioning Fusion significantly better to navigate external and operating headwinds going forward. At the same time, we remain mindful of the evolving external environment. Developments in West Asia, volatility in energy prices and possibility of inflationary pressures are risk the broader financial system will continue to monitor closely. However, let me reconfirm that we see no impact of the crisis on either the book growth or the portfolio performance.
Before I move to the business update, I would like to acknowledge a few important leadership developments during the quarter. We are pleased to have Priyanka Vadera join us as the Chief Strategy Officer. Priyanka brings deep industry experience across financial services and will play an important role in Fusion’s next phase of technology process and transformational LED growth. We also welcome Ramika Agarwal who has joined the Board as Nominee Director representing Creation Investments, one of our key Promoter Group shareholders.
At the same time, I would like to place on record our Sincere appreciation for Mr. Kenneth van der Wael for his valuable guidance and contribution during his tenure as a Nominee Director with Fusion. We wish him all the very best going forward. Let me now come to the business update Q4FY26 disbursements stood at 2,140 crore, up from 1594 crore in Q3, reflecting strong sequential growth during the quarter. This momentum was driven by deeper identification of right customer segments and continued investments in automation across onboarding and collections, enabling field teams to operate with significantly lower process friction.
Productivity improved materially across both MFI and MSME businesses during the quarter, helping the AUM trajectory turn positive during Q4. Another important operating change implemented during FY26 was the move towards a far more granular branch level operating framework. Since November 25th we have classified branches across category A to D based on credit metrics, operating quality and growth behavior. This framework is now helping drive both growth allocation and risk calibration at the branch level.
We are beginning to see meaningful benefits from this approach. Currently, nearly 90% of our disbursements are coming from category A and B branches. Importantly, we believe the business today has sufficient headroom to continue growing in a calibrated manner without meaningfully increasing portfolio risk. This confidence comes from improved customer selection, stronger operating guardrails and significant penetration opportunity that continues to exist within our existing branch network. Our aum increased from 6,800 crore to 7,400 crore during the quarter.
Also, the average AUM for the quarter increased by nearly 200 crore sequentially. This is an important shift because the benefit of the higher average book will start reflecting positively in NII and p pop from Q1 onwards. With operating leverage expected to accelerate from Q2 coming to portfolio quality, the forward flow rates in current bucket continue to remain at sub 0.1% level on a net basis and we continue to see similar trends through April and May so far this year. On collections, we are now beginning to see the benefit of people, processes and technology investments made over the last few quarters.
A large part of our monitoring and reminder systems are now becoming AI and trigger driven, allowing early intervention, better execution, consistency and tighter portfolio monitoring. During Q4 alone we executed over 5 million AI led customer interactions mostly in collection and customer onboarding this is helping improve customer engagement, consistency, early delinquency monitoring and field productivity. Importantly, we continue to see very strong collection efficiency trends across most of our core operating states including up, Bihar and Orissa where collection efficiencies continue to remain at approximately 99.75%.
This gives us the confidence that the portfolio stability we are now seeing is broad based and supported by improving customer behavior as well as stronger field execution discipline. Our 90 plus DPD cash recoveries including the rate of recovery crossed 35 crore for the quarter. Importantly the write back component within this stood at approximately 21 crore compared to nearly 15 crore in the previous quarter reflecting improving recovery efficiencies and portfolio behavior. Despite a far reducing right of book as communicated earlier, our collection model in these buckets continue to remain tightly managed through combination of in house field teams and AI enabled calling infrastructure.
On customer quality we continue to focus on lower leveraged and more stable borrower segments while the new to Fusion customer mix in MFI increased steadily from 24% in Q1 to 35% in Q3 and now stands at 37% at the end of Q4. Within MSME as well we continue to strengthen our positioning in the loan against property segment particularly within the 8 to 15 lakh ticket size category. Collection efficiency trends remain robust across both the businesses with MFI collections improving to 99.7 and MSME at over 99.3 while our stated credit cost guidance remains in the range of 3.25 to 3.75% in MFI over the long term this is more so adjusted for any cyclical issues.
Internally, however, the portfolio trends are modeled towards a credit cost of 2.5%. We also feel that with MSME as a portfolio kicking in, the overall weighted credit cost guidance will be closer to 2.5% as a result of the operating and portfolio improvements undertaken over the last few quarters. Quarterly credit costs have reduced Significantly down to 56 crores from 80 crore in the previous quarter. Alongside this we are also in the process of migrating to a significantly more advanced lms. The UAT process has already commenced last week and the migration is expected to be completed by the end of August 2026.
The new platform should materially improve branch productivity, onboarding, quality monitoring capability and customer servicing while reducing further process friction across both underwriting and collections. As we move into FY27, we will additionally focus on two key operating priorities, one stronger execution around branch consolidation and overall operating efficiency at a branch level and two further strengthening client onboarding, retention and calibrated book growth across existing and new centers.
Coming to profitability reported pact for Q4 stood at 114 crores. However, excluding the one time DTA impact, core profitability for the quarter stood at 37.5 crore translating into an annualized ROI of nearly 2.1% for Q4. The first 45 days of FY27 give us further confidence in our direction. Growth trends remain healthy, collections continue to stay strong and portfolio quality is stable across core markets. With a branch led execution model now settling well on the ground, we remain confident of progressing towards our 10,000 crore portfolio aspiration by March 2027 while maintaining disciplined portfolio metrics.
With that, I would like to now hand over the call to Mr. Krishan Gopal to take you through the financials in greater detail.
Krishan Gopal — Chief Finance Officer
Thank you Sanjay and good morning everyone. I am pleased to present RQ4 and FY26 financial performance with greater context and at our last interaction. This has been a year that reflects meaningful financial strengthening across capital liquidity margins across asset quality and provisioning. Let me take you through each of them in turn before I get into the financials. A Brief about Important A brief but important word on where we have come from. During the earlier few quarters the company was navigating financial covenants under stress caveats, ongoing concern and cautious lender sentiment.
I am pleased to report that all these challenges are now firmly behind us. The improvement in our book is clearly evident in strong asset quality matrices like GROSS NPA of 3.21% and net NPA of 0.51%. Our capital and liquidity position remains robust and well capitalized. Liquidity stood at 1913 crore as on 31st March 26th. This liquidity is higher by about rupees 500 crore which we have deliberately kept keeping in the geopolitical situation in mind. And of course this additional liquidity comes at a cost, so this has a additional finance cost of about 7 to 8 crores for the quarter.
In addition to on balance sheet liquidity, company holds sanctions in hand amounting to 1245 crore which are drawable at any time, further reinforcing our funding flexibility. And further, in addition to this company has strong pipeline of about 2,500 crore. Capital adequacy stood at 36.46% comfortably above regulatory requirement. This level of capitalization provides meaningful headroom to support the target of around 10,000 crore EUM in FY27 without requiring any further equity inclusion during this year.
During quarter four of this year we raised 2,040 crore in new borrowings comprising of term loans, direct assignments and pass through certificates for the full year. FY26 total debt of about 6000 crore across our lender base was raised during the fiscal we onboarded 11 new lenders underscoring the resilience and credibility of our franchise within the financial ecosystem. The lender engagement story has continued to evolve positively through quarter four. Several credit partners that were previously in wait and watch mode have actively re engaged with fresh credit lines extended by both new and existing lenders.
The composition of our borrowing base has shifted favorably. Private sector banks now account for 42% of our borrowings up from 36% while public sector banks exposure has declined from 27% in FY25 to 16% reflecting our broadening and diversification of our institutional lender relationship. Foreign banks contribute about 18%, NBFC is about 14% and development financial institutions constitute about 4%. Cost of borrowing from front Our average cost of borrowing for quarter four stood at 10.30%, broadly similar to last quarter demonstrating the stability of our borrowing franchise even as we actively expanded the lender base.
The marginal cost of borrowing moderated further to 10.8% in XIRR terms in Q4FY26 from 11.4. Again XIRR in Q3FY26. This is a 100bps quarter on quarter improvement reflecting the improving quality of our borrowing mix and the engagement of a broader lender base at a more competitive rate. Going forward, we anticipate our margin cost of borrowing should continue to improve from current levels as the diversity of our sanctions and depth of our lender relationship grows, but of course this is subject to the current macro environment and geopolitical environment.
Our credit ratings remain stable across instruments. Long term debt and NCDS are rated CRISIL a stable and ICRA a stable and CARE by CARE at a with a stable outlook with CARE upgrading outlook from rating Watch with negative implications to stable in quarter four. The CARE outlook upgrade is an external validation of the improvement in our financial and operational profile and gives us confidence in further rating momentum as our profitability and asset quality continue to improve. We continue to engage with our other two rating agencies on the upgrade discussions.
Net interest margin on for the Q4FY26 stood at 11.44% up 12 basis points from 11.32 in Q3. Net interest income for Q3FY26 was 220 crore compared to 237 crore, a 6% sequential decline primarily reflecting higher finance costs due to the additional liquidity which we have kept. As we have discussed in the beginning of the section, as the aum grows in FY27 NII shall expand correspondingly. Total operating expenses has stayed stable in Q4 at 205 crore nearly flat sequentially from 207 crore in Q3 and flat year on year from 206 crore in Q4FY25.
For the full year FY26 opex was at around 832 crore. As a result pre provisioning operating profits for Q4FY26 stood at 93 crore broadly flat quarter on quarter at 94 crore in Q3FY26 and up 3% year on year from 90 crore in Q4 of FY25. This flat PPOP is after absorbing additional finance cost of about 7 to 8 crores due to additional liquidity maintained during the quarter. The full year FY26 population was 362 crore. This demonstrates the franchise underlying earning strength and the tangible benefits of the operating efficiency systematically built throughout the year.
Profit before tax for Q4FY26 was 37 crore up 166% from 14 crore in Q3FY26. A defer tax asset of 76.8 crore was recognized during Q4FY26 arising from temporary taxable differences primarily from the ECL provisions to the extended considered recoverable based on our forward profitability assessment. This this DTA recognition reflects our confidence in the trajectory of future taxable profits. Thus with the impact of recognition of DTE, the PAT for the quarter was 114.19 crore excluding the impact of DTE, the annualized ROA for Q4FY26 to that 2.08% for the full year FY26 PAT was 13.9 crore making a decisive return to the annual profitability after a loss of about 1200 crore in FY25 on ECL we had provisions as per ECL model of 53 crore.
During the quarter write offs won 136 crore. Closing ECL was 270 crore. This works to a provision coverage of 84% on stage 2 assets and 71.5% on stage 2 assets collectively constituting about 81% coverage in stage 2 and stage 3. The rate of recovery during the quarter stood at 21 crore up from 14 crore in Q3 demonstrating improving effectiveness in our in house collection teams. Thus the net P and L impact of credit costs for Q4 was 32 crore equivalent to 0.5 crore of average on book loans for the quarter.
This compares to the 65 crore in Q3FY26. The trajectory of credit cost normalization has remained clear and consistent. I would like to mention that during this quarter we have release management overlay to the extent of 5 crore lesser as compared to the Q3. Based on the monthly net forward flow rates from the current bucket which is 0.03 in Q4FY26 and continued improvement in delinquency buckets and the quality of the new book performing at 99.77% collection efficiency, we remain positive to maintain our stable state credit cost of 2.5 to 3%.
The company has maintained a strong emphasis on portfolio hygiene and Conservative provisioning through Q4. Asset quality matrices improved further during the quarter. Gross NPA declined to 3.21% in Q4 from 4.38 in Q3 FY26, the fourth consecutive quarter of gross NPA improvement, net NPA improved to 0.5 from 0.63% in Q3 and 0.60% for the internal calibration. These are among the most important validation matrices for our recovery Total equity as on 31st March 26 to debt 24.56crore rupees. To conclude, Q4 and FY26 mark the completion of a meaningful phase of financial stabilization and the return to profitability.
The year has been characterized by the stable and improving margins, strengthening provisioning coverage, healthy liquidity and a materially improved lender landscape. As we enter FY27 our financial priorities are clear sustaining financial discipline and cost efficiency with cost to income ratio improvement as the primary lever of the operating leverage, deepening and diversifying our lender relationships to support AUM of 10,000 crore target and continuing to benefit from the margin cost of borrowing improvements as lender confidence builds on with improving asset quality, robust capital adequacy, a strengthening funding profile across 11 new onboarded lenders in FY26 and a clear path to credit cost normalization.
We are well positioned to deliver steady and sustainable progress in the year ahead. Thank you. And with that I open the floor for the Q and A session. Sanjay and I along with the rest of the management team are available to answer your questions. Thank you.
Questions and Answers:
Operator
Thank you sir for your presentation. We will now Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press STAR and one on their test on telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while Asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. The first question come from the line of Abhijit Tibriwal from Motila Loswell Financial Service limited.
Please go ahead.
Abhijit Tibrewal
Yeah. Good morning sir. Thank you for taking my question. So two, three things. One is this PTA that we have created in this quarter. Is this the only quarter where this DTA will be created? Or going forward also there can be more DT creation.
Krishan Gopal
Thanks Abhijit. So as you are aware we were not recognizing DTA as there was a caveat on the going concern. Now we have started the defer tax asset for the first time after about four, five quarters. Now going forward it is going to be a DAU as far as defer tax effect is concerned. And to the extent recoverable and availability we are going to recognize the DTA every quarter or year based on the availability.
Abhijit Tibrewal
Got it. So for the next few quarters we can see a DTA creation. And to that extent there could be tax write backs in the coming quarters as well.
Krishan Gopal
Yeah, that’s the normal situation and we’ll follow that.
Sanjay Garyali
So abhijit, the total DTA as we are aware is close to around 390 crores. So you’re aware we released about 77 crore. Now the balance is left which is which in the due course on a pro data basis. So there is no hurry to consume that. But on a pro rate basis in the next 12 to 18 or 24 months we will consume as and what the auditor is also comfortable with. But that’s the amount that is left to be, let’s say consumed or whatever. So 390 minus 77 is what is still left on the table.
Abhijit Tibrewal
Got it. The other question I had was on the liability side of course, I mean last year meaning FY25 we had reported a big loss. So obviously PSU banks don’t really give out lending lines. Now that we have at least reported a profit this year, FY26, do you expect that going forward lending lines from PSUs can also start opening up? And the related question in the opening remarks Krishna sir said that we are in discussion with the credit rating agencies the other two for an upgrade. So I mean what is it that they’re looking for?
Is it improvement in profits, improvement in asset quality that they will be monitoring or do they also have some size, the balance sheet size.
Krishan Gopal
So I’ll go one by one on your questions Abhijit. So one is during this year also we have had decent support from PSU banks like One of the large PSU banks has supported us to the tune of 800 crore on direct assignment front in this year. So we continue to get the support from PSU banks and going forward we have had discussion with all the PSU banks and they were looking for these annual results and the final balance sheet. And everyone is broadly open to consider and we are hopeful. We are confident that we will get the support.
And while we speak our proposals are already with about 5, 6 banks including 3, 4 PSU banks for the credit sanction under the credit guarantee scheme. So there is a positive trajectory on that side.
Sanjay Garyali
I think Abhijit, the PSU banks may want to start with the credit guarantee scheme with everybody because that’s like. So you, you’re aware that we have close to about 300 crore that we can take up. So my sense is that our applications are under process. Most of the 300 cross that we take up will come from the Phu banks and that that will trigger the normal lending from them.
Krishan Gopal
On the rating fund we continue to engage with all the rating agencies and as per our discussions the other two rating agencies were looking forward to our annual results in the balance sheet and then they, they wanted to take a call. However, in between, you know, this geopolitical situation has happened. So now it’s less of the internal because we are already profitable. Asset quality is robust and they should be comfortable. But I think the whole geopolitical situation and the performance of the industry would be monitorable for them.
However, as we have mentioned, we are confident and we continue to engage with them.
Abhijit Tibrewal
Thank you. And then the last question I had was on how should we look at FY27. Now a few things that came out during your opening remarks was that despite this West Asia war, we are not seeing any impact on growth and asset quality collections holding up well. Then we also said that on credit costs maybe 3.25, 6.5 is through cycle credit cost. But this year, given that MSME is also going to ramp up, we are thinking of something in the World cup of 2.5%. So if I were to put this all together, how should we think about maybe annual growth in FY27 and how the borrowing costs could shape up and the fact that going forward the interest income reversals could be lower so margins could expand.
What would that translate into the ROAS for this year?
Sanjay Garyali
Abhijit, I’ll answer your first part and I’ll let Vishan take the second one. In terms of FY27 outlook, we continue to hold firm to the guidance of 10,000 crore and like I explained the first 45 days which have been like completely part of the West Asia crisis, we do not see any impact. We also feel that. So you’re absolutely right. There could be some challenges in the economy and there could be inflationary pressures. Our view is that in the last one, one and a half year the book that we have built is very, very strong in terms of the credit matrices that we have used.
And I think these kind of measures help manage whenever the let’s say macro headwinds come. Because nobody knows when the macro headwinds are going to come. But I think the prudence or the over prudence that we used in customer selection that is going to ensure that the portfolio is able to manage multiple headwinds on the macro side. However, I think, like I think the government has also talked about it, austerity measures have to be there and we have, we are already started working on austerity measures in the last 30 to 45 days and there will be certain costs which we think we need to cut down whether it is some additional branch costs or travel costs.
But there will be, there are already significant austerity measures that we have put in place. However, from an AUM growth perspective and portfolio perspective we continue to hold that 10,000 crore and let’s say a portfolio flow rate of between 0.1 to 0.15% net in the current bucket rest. I’ll leave to Krishan to answer.
Krishan Gopal
So Abhijit, can you please elaborate? What was the other question?
Abhijit Tibrewal
So Krishna, what I was trying to understand is if I look at fourth quarter also, right. I mean we are yet to see an improvement in the peak POP at the peak of level. So going forward now. Yeah, now going forward given that maybe interest income reversals which were happening, some become lower, hopefully the marginal cost of borrowings reduces as we move forward. How should we think about margins? OPEX and finally the ROI for this year.
Krishan Gopal
Yes. So the baseline for this is. Yes, the AUM has grown during this quarter. However the average AUM is broadly flat. On top of it the P POP is broadly flat because of the two things. Two, three things. One is as we have mentioned we have kept the additional liquidity of about 500 crore. So which has an impact on the interest cost to the tune about 8 crore. And deliberately, I mean the DA income has been accrued lesser by about 7 crore during the quarter. So this has been broadly the impact. So if we nullify this impact the P POP would have been higher by that amount as far as OPEX is concerned at a broad level the total OPEX for this year has been 832 crore.
What we envisage for the next year is broadly a 5, 6% increment into that at an annual level. Having said so as a team the whole of Fusion Finance team is running an OPEX rationalization project and we are going to look for the avenues wherever possible including as we mentioned in the past branch rationalization and any two processes. And we have engaged some taking help of some experts also on that front. So that should result into a OPEC reduction OPEX rationalization and definitely it should not go beyond 4.5percent of increment or 832 crore.
So in summary going forward there should be an increase in AUM and that will reflect into ppop. We don’t see any increase in the opex. So that will again come into the PPOP credit cost guidance as Sanjay he has mentioned, I mean is stable state. So there would definitely be an increase in
Sanjay Garyali
NET NET P POP. You will start seeing growth in Q1 and the acceleration in P Pop that we all expect as a part of the AOP will start coming in from Q2. So the real acceleration will happen in Q2 but you will see growth in Q1 on P pop.
Abhijit Tibrewal
This answers all my question. Thank you so much and I which.
Operator
Thank you. Next question come from the line of Nitesh from Investec. Please go ahead.
Unidentified Participant
Thanks for the opportunity sir. So first question is on interest income on a Q on Q basis the interest income is flat despite we seeing decent AUM growth on a Q on Q basis and sharp improvement in asset quality. So what is the reason for flat interest income on a Q and Q basis?
Sanjay Garyali
Nitesh, any other question we will answer them together.
Unidentified Participant
Yeah. Second question is on active borrowers growth. So how do you see active borrowers growth in FY27 and let’s say any any target of new customer acquisition for FY27. Third question is on what are the plans to add branches in FY27. These are the three questions sir.
Sanjay Garyali
Okay. So on the flat NI Krishan has already explained flat or slightly reduced NI is essentially because the average book growth impact will start coming in right now. You see the average book growing or the average growing by already between150to200crore. So that is about6.7crore upside. However the dent comes from the additional liquidity. That’s about 8 to 9 crore. P and L impact lesser DA that we done. That’s another about 6 to 7 crore. So that’s why you see the NII flatter. However, like I explained Q1 onwards, you will see this NII growing and then the acceleration will start in Q2 because that’s where the real acceleration on the average book will start.
So right now you see the AUM growing but the average book will grow much, has grown much lesser. You understand how the average and the EOP concept operates. So that’s one hope that answers your client and I on the active borrower. See there’s a call that we have taken that we will go slow on entry level borrowers. So that’s less than 40,000. That’s why you see that coming down. There’s a slide that we have explained in less than 40,000 and between 40,000 to 1 lakh is where the sweet, sweet spot is.
So from a new client acquisition, most of the upside in quarter four has come from. Okay, has come from the new loans rather than the ticket size increase. The ticket size has only gone up between these two quarters by 2 to 3%. The real upside has come from the number of borrowers which has gone up by about 30, 31%. We were acquiring in terms of numbers about 34% volume was coming or disbursement was coming from new borrowers. This time it is 37%. So now you see that focus, we’ve been telling you that between 35 to 40% of the new volume will come from of the new disbursement will come from new borrowers.
So now you see that inching towards 37. The good thing is that in that 37% and we have explained majority of it is coming from less leveraged borrowers, less new to credit borrowers. And 80% of that is coming from just one borrower other than fusion. Yeah, so that’s on the active borrower and we continue to. So 37% of this, between 35 to 40%. Right now we are 37. I think we will be closer to 40% on new client acquisition, on the new disbursement, on the branch consolidation or on the branch growth.
So see what we had done was that when our book was at about 12,000 crores, we had 1400 microfinance branches. There were some 250 branches which we had split because the existing AEM of the branches had crossed 12 to 14 crores. Now we all are aware that the AUM has dropped since then. So there are close to about 200 branches which we had split to form another set of branches. Now the parent branch itself, the AUM has collapsed and that market can be managed by the parent branch rather than the offshoot branch that we created.
The plan hence is that of these 200 branches, a lot of branches we will consolidate and There are about 7,200 branches that we will add. So the net addition will be negative by about 100. But that is more like a technical because these 200, 240 branches are more like a drag on OPEX and not technically now required considering that the parent branch can manage and these 70 to 80 branches essentially we are looking at in three states between Tamil Nadu, West Bengal and Assam. In all these three markets our collection efficiency is around 99.8 and the portfolios are roughly sub 5%.
Unidentified Participant
Sure. One more question on MSME. Thank you. I’m sorry to interrupt but
Operator
You may please rejoin queue for more questions. Thank you.
Unidentified Participant
Sure. Thank you.
Operator
Our next question comes from the line of Viral Shah from IFL Capital. Please go ahead.
Viral Shah
Yeah, hi Sanjay and Krishan. Good morning and congrats on a good set of numbers. I had two questions and probably two follow ups if that’s okay. So first is with regards to I understand Christian has given fairly detailed explanation with regards to yields and why NI did not see growth in this quarter. What I wanted to understand is have we taken any rate hikes from April? Importantly, is there actually a scope for us to now take a rate hike given that the asset quality trends are now on an improving trajectory and the reported numbers now already start factoring factoring in a better credit cost outcome.
And while the cost of funds in general for the markets are is likely to increase or has already started increasing for especially us, it’s unlikely to increase at least in the near term. So is there a case for us to say increase the rates on an incremental basis?
Sanjay Garyali
Any other question veer then we will collectively answer
Viral Shah
Sure. The second question I had was with regards to if you can give some numbers around the disbursement growth and also the collection efficiencies in the month of April and maybe May 1st half. I understand you gave the qualitative flavor but if you can help us with numbers that will be quite helpful. And the two clarifications or a follow up that I had was you mentioned about CGS MFI helping us the 300 crores cap. Now is that very clear that it is at a borrower level, not at a lender level. And the second was the DTA recognition that you mentioned of say the residual 313 odd crores.
Will that be over the next four quarters or six quarters or eight quarters. Just some clarity over there.
Sanjay Garyali
Okay, so the first three questions I’ll answer dta I’ll let Christian take. So rate hike. See we have been saying that for the last nine months there was no rate increase that we had done. And despite the borrowing cost going up by 150 to 200 basis points now from 1st of April we have increased the rates by a small 0.75% which is in line despite the borrowing cost having gone up by 200 basis points. And this is in line with the industry. But the 1st of April onwards rate is increased by 0.75%. We can’t talk about how this will pan out in future and what rate hikes will happen in the future.
So we will wait and watch on the disbursement growth. Like normally quarter one is about 25 30% down as compared to quarter four because quarter four is supposed to be elevated and quarter one is little lazy because of multiple things. For us quarter one has been very similar to quarter quarter four. Quarter four we were at about what 700 crores. Quarter one so far we are at about between 625 to 650 crores. So that’s like just 4 or 5% lower than quarter three. Quarter four but this is budgeted as per the AOP, the 10,000 crore AEM and the 9,000 crore disbursement plan.
This is as per the part of the AOP we had budgeted. We had actually budgeted Q1 to be at 10 to 15% lower. But we are pleasantly surprised that we are better than that or there. On the collection efficiency we continue and reconfirming we continue to be 0.1% flow rate net in MFI which translates to a net collection efficiency of 99.9% and a gross collection efficiency of 99.75. This is for the entire month of April and for the first 15 days of May that have passed on the credit guarantee scheme. I think there is a lot of clarity.
While we have given applications our understanding is 300 crore at our level. But there are a lot other questions to be asked and answered. So we have given our applications and now we are waiting. So on credit guarantee I think we should wait and watch for further steps and then see how it unfolds. Folds on the DTA recognition. I will leave it to Krishan
Krishan Gopal
So well, on the DTA recognition we will recognize the DTA as and when the profit comes and whatever the tax liabilities equivalent to that we will Recognize dta. That is the plan as of now. And we will assess the situation as at the year end again. And this is a dynamic situation. So as of now it is, it is going to be equivalent to the X liability. So it will not be four to six quarters. It may be more than that. It would be between 18
Sanjay Garyali
To 24 months. 18 to
Krishan Gopal
20.
Viral Shah
Got it. And just thank.
Sanjay Garyali
Yeah. You can assume we’re all eight quarters.
Viral Shah
Got it. And just to clarify Christian, what you mentioned on the DTA pieces, which would imply that there would be a zero tax rate or no tax for the next eight quarters. Right. You won’t be recognizing it like this in the one you did in this quarter.
Krishan Gopal
That’s correct. As I said, we will revisit these situations every year end. So we’ll do that as of now it looks like what
Sanjay Garyali
You’re saying. Yes,
Krishan Gopal
Yes, that’s correct.
Operator
Thank you Mr. Shah. You may please rejoin the queue. If you have a more question. Our next question comes from the line of Rajiv Mehta from yes, securities. Please go ahead.
Rajiv Mehta
Yeah, hi, good morning. Congrats on very good numbers. So most of my questions are answered but just quick to three things. One is with regards to this BADEX recovery. So if you just quantify the pool from which we are recovering and whether this accelerated 15, 20 odd crore per, you know, income per quarter income, can that continue? And what is your estimate then for the whole year for MADX recovery and, and would it entirely be incremental OPEX or within the same opex the recoveries will come?
Second is on the MSME strategy. It is 10% of the book roughly at this point in time. But if you can just kind of, you know, take us through granularly, what is the strategy for growing the MSME book? Because right now it’s being done from selected branches. The ticket size is 4 or 5 lakhs. But I think initially you spoke about targeting 8 to 15 lakhs of ticket price. So what is the scale of plan? If you can just elaborate on that. And second is we also spoke about migrating to advanced LMS by August for better productivity and quality.
But would it kind of hamper impact, you know, the business in the near term? Yeah, these are the three questions. Thanks.
Sanjay Garyali
Okay, thanks, Rajiv. So Rajiv, to your first question. The total, if you see the total right back or the income that we received this year is about 110 crore. We are targeting between 150 to 160 crore, which means that is it about 40 crore. We have explained the cost of collection in this hard bucket is between 25 to 30%. So you can assume that 40 crore incrementally net of cost will actually be 30 crores. 40 crore at 25%. So knockoff 10 crore. So 30 crore incremental. And for all hard budget collection we can assume 25 to 30% as our cost of collections.
So net whatever we recover, 75% straight away goes into 75 to 70% goes straight away into bottom line. So you we will considering that we have over 2000 crore. While the recent book is there is no write off. There’s almost literally zero write off that we will be doing going forward. But I think the technology and the strategy that we are using to collect that will lead to this higher and not because of more availability of pool. So that’s the way we are looking at it. Just to give you a number, today we are able to reach out to over 1 lakh 90 plus borrowers through the bot calling that we have started to understand.
Bot calling is not something that gets by design upfront. It takes time to set in and all. But this will not. This is not like coming at a very high opex and they like the opex is actually compressed by about 1/10 or 1/15 second on the MSME strategy. Now the MSME strategy that we are working on, you understand our product is income assessment. We are in tier three and tier four towns. There are two additional things that we are doing that we are moving. We are creating more right to win in the ticket size between 8 to 15 lakhs.
And we are saying okay, we don’t want to play in cash flows. So we don’t want to deviate on cash flows. We will not deviate on foyer. But we want to see how a better cash flow customer we can do with let’s say a different collateral. So if you have to ask me, the risk that we are taking is on the collateral and not on the cash flow of the customer. And that is why and that confidence is coming from six to nine months of experimentation that we have done where the current bucket Collection efficiency is 99.5, 99.4.
So that there are two channels that we are adopting. We have also introduced the connector channel few months back and we’re seeing good upside from there. So that’s about 25 to 30% volume in a steady state will come from the connector channel on the advanced lms. So the way the advanced LMS will be institutionalized or set up is that there are 10 branches that we will first be piloting then we will be going to about 200 branches once we are confident and there is a back testing and this model already operates in two to three MFIs.
So it is not something that is like completely foreign to the MFI sector. It is just little bit of customization. Rajiv and we are quite confident that after this pilot of 10 and 200 branches the rest of the 121300 branches will be simple to execute. So we don’t expect and that is why we did not keep it in the end of the financial year. We kept it somewhere. The UAT started about a week back. So May June are typically not like very accelerated times and hence we have kept it at a time where we will have plenty of time to check if there are any issues or transition challenges.
Rajiv Mehta
Yeah, thank you so much and best of luck.
Operator
Thank you. Our next question come from the line of Kaushik Agarwal from Hayton Securities. Please go ahead.
Unidentified Participant
Yeah hi sir. Thank you for the opportunity. A couple of questions. So firstly on the other income line item I can see there has been a sharp jump on Q on Q and Y O Y basis. Will you can you give some reason like what really explains this? Number two is on the ECL coverage. So so I have been noticing that your coverage across the buckets have been coming down on a sequential basis. So should one expect that we have broadly touched the trough or there is some more scope for ECL coverage to come down.
And lastly if you can give some color around we are already like almost 50 odd days into this quarter. How is the broader demand trend you are seeing in any sort of any particular customer category or geographical segment where you are noticing some kind of a stress or where you have tightened your underwriting filters.
Sanjay Garyali
So I’ll take the third question and let Christian answer the question on other income and ECL coverage. So in the first 45 days we have so there are so while there is no stress on the portfolio and there is no impact that we see in terms of demand although and this is two months back we made two changes on the MSME side there are certain sectors or foyer generally we went a little slow on so about 10% to 15% we reduced specifically on the fringe customers or on the customers which were on the borderline.
And second we said that about 5 to 6% of our business was coming from Fusion plus two lenders when we were acquiring new customers. So this we have stopped. We are not doing in microfinance Fusion plus two lenders for the last two months now where we are acquiring new customers. So these are the two changes that we have done on let’s say ensuring that. And this is not just the West Asia crisis or the global issues. Every quarter we the intention is that how do we keep cutting the bottom two deciles or the bottom one decile and this is also a part of that.
So we are on target for let’s say 10,000 crore. We don’t see any major headwinds. Austerity measures will continue to happen. For the other two other income increase and ECL coverage I let Krishan answer.
Krishan Gopal
So on the other income front the increase is mainly due to the increase in the right of recovery and coming to the ECL. The ECL coverage for the stage two and stage three is for stage two it has increased. For stage three it is broadly similar. Stage one. Yes. It has come down from 1.1 to 0.9% which is basically reflecting the better flows over last two three quarters. And this is purely coming from the that ECL model and we are confident on that front. So this is. This is the reason. I mean when asset flows are improving it can’t be constant but I think it should be.
It should remain around these levels now.
Unidentified Participant
Okay. Thank you so much sir. Best of luck.
Operator
Thank you. Our next question comes from the line of from ask Investment Managers Ltd.
Unidentified Participant
Thank you sir. Thank you for giving me the opportunity and Congress on a good sort of numbers. Just few queries on the Bihar Bihar portfolio we are growing strongly but there has been announcement from the Bihar on the act which it is similar to Karnataka act they have done. So are we seeing any impact on our portfolio or in in terms customer behavior on that or is it just a start day announced. There is no official. So that’s where there is no impact as such how one should see this portfolio going ahead.
Sanjay Garyali
Any other question other than.
Unidentified Participant
Yeah. Secondly on the as you said in terms of stage one and stage two and stage three ECL provisioning. Just one clarification. Are we increasing or any coverage percentage due to the geopolitical provisioning which we have seen in one of the mfipo mfi NBFC have done higher provisioning due to this geopolitical. Any changes in terms of that on ecl?
Sanjay Garyali
Okay so your first question is on Bihar. So we were actually the first ones to come out in the market. This is about 1 1/2 months back where we said that Bihar for regulated entities is actually welcome and it is a time that we need to inform the customers and be able to decimate information. Bihar Continues to be perform extremely well. And this is not just for us, for everybody, for our peers elsewhere. While I’m talking the Collection efficiency of Dr. Continues to be 99.83. This is March and April and May it is 99.85.
So Bihar continues to be very strong in terms of collection efficiency. I think we should equate Bihar to Tamil Nadu because a similar legislation came in Tamil Nadu. The way the microfinance industry handled it with the administration especially the MFIN or the sro. I think that was commendable. I think same effort has gone in Bihar. If you see Tamil Nadu again close to everybody is at a collection efficiency of 99.5. Our collection efficiency in Tamil Nadu in March was 99.82. Right now it is 99.85.
So I think Bihar is similar to what TN is and I think we welcome anything that encourages the regulated entities or titans around, let’s say the unregulated entity. So I think that is and there is nothing negative that we see in Bihar on the stage provisioning. I leave it to Krishan too. Stage 1, 2, 3. Stage
Krishan Gopal
1 as we have discussed, I mean 2, it has gone up from 66 to 71. Stage 3 it is broadly similar and as I explained on the stage one this has come down but this is purely a reflection of the better collection efficiencies. We are clocking month on month quarter. So he’s
Sanjay Garyali
Saying the provisions that he’s saying one of the large lenders has taken additional provisions. So are there any additional provisions that we have taken on the ACL model?
Krishan Gopal
So on that front what we have done is although as I mentioned we had in the queue for the best collection efficiencies and lowest flows, there’s no impact on the ground. However last quarter we have drawn about 15 crore for at least 15 crore from the management overlay due to this to be conservative we have drawn lesser at a 10 crore so 5 crore lesser we have drawn down. So that’s the measure we have taken. I think
Sanjay Garyali
Overall you should look at it from a overall perspective. I think our coverage anyway is what in the higher stages between 75, 76% which the market is at about 65%. So we are anyway provisioned 10% more than the market or the industry. And we don’t see a need to do that neither in April and May figures nor in the quarter four figures. So it is already, we are already at a provision level of 10% more than the market.
Unidentified Participant
Thank you. Thank you. That was very helpful sir.
Operator
Thank you ladies and gentlemen. Due to the time constant, that was the last question for today. Also if you have a more question, you can call complain directly after this call. I now hand the conference over to the management for the closing remarks. Thank you. And over to you team.
Sanjay Garyali
Yeah, so thank you so much for being patiently, I think supporting us during the tough times. My assurance and the entire Fusion team’s insurance along with the senior management is that you will see performance on. You’re seeing performance on FAT coming in. Most of this performance is come because of credit cost reducing. Some of it is happening because of the AEM growth, because you’re not seeing the average AUM so far. However, Q1 onwards you will see the AUM coming in which will lead to a higher income growth for your P pop.
And then Q2 onwards is where the real kicker or the acceleration will happen. So that we are fairly confident and we are supremely committed to that as an overall objective. And at the same time, whatever crisis that we see in terms of global headwinds, we are fairly confident that the portfolio has the ability to manage those headwinds. So thank you so much. Thanks for patiently backing us for the entire year.
Operator
Thank you Sioux. Ladies and gentlemen, on behalf of Fusion Finance Ltd. That concludes this conference, thank you for joining us and you may now disconnect your lines.