Fusion Micro Finance Ltd (NSE: FUSION) Q1 2026 Earnings Call dated Aug. 11, 2025
Corporate Participants:
Unidentified Speaker
Smit Shah — Senior Account Manager
Devesh Sachdev — Managing Director
Sanjay Garyali — Chief Executive Officer
Amandeep Singh — Interim Chief Financial Officer
Analysts:
Unidentified Participant
Abhijit Tibrewal — Analyst
Viral Shah — Analyst
Rajiv Mehta — Analyst
Pranav Gupta — Analyst
Bhavesh Kanani — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Fusion Finance Limited Q1 FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touch tone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Smith Shah from AD Factors. Thank you. And over to you sir.
Smit Shah — Senior Account Manager
Thank you. Good morning everyone and thank you for joining us on the Q1 FY26 results conference call of Fusion Finance Limited. We have the company senior management team with us on this call today. 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 uncertainty. A detailed statement in this regard is available in the Q1 FY26 investor presentation that has been uploaded on the stock exchanges and the company website. I now hand over the call to Mr. Devesh Sajdev, Managing Director, Fusion Finance Limited to begin the proceeding of this call.
Thank you. And over to you sir.
Devesh Sachdev — Managing Director
Good morning everyone and thank you very much for joining US for Fusion’s Q1 financial year 26 earnings call. The results and investor presentation are available on the exchanges. For your reference, I will begin with a very brief overview before handing over to my colleague and CEO Sanjay Garriali for detailed remarks. As you know, financial year 25 was a challenging year for the industry marked by a prolonged credit cycle and operational headwinds. At Fusion, we remained proactive and transparent, flagging early signs of stress and acting decisively. We implemented corrective measures and well ahead of the curve, staying true to our commitment as a responsible and responsive organization.
So this financial year has begun on a strong Note for us. Q1 performance reflects the early impact of the strategic actions we took last year. Costs have moderated, collections remain robust and our operating model is delivering with greater consistency. With renewed confidence and sharper execution, we are well positioned to build momentum through the year and drive long term value creation. Since August 2024 we have taken firm measures to strengthen our foundation and we are now seeing tangible signs of recovery. The direction is clearer, our confidence is stronger and we remain focused on monitoring progress and taking calibrated action.
Credit costs have steadily declined quarter on quarter from INR 571 crore in Q3 of FY25 to 253 crore in Q4 of 25 and further to 178 crore in Q1 of FY26. GNPA has improved from 7.9 in Q4 to 5.43 in this quarter. The quality of the new Portfolio originated post August 2024 has been strong, reflecting the effectiveness of our revised underwriting and collection processes. At the sector level, we are seeing renewed focus on credit quality, discipline and responsible growth. Regulatory moves such as the lowering qualifying asset threshold from 75 to 60% are supportive steps as India advances towards its $30 trillion economy vision by 2047.
Microfinance will continue to play a pivotal role in fostering inclusive growth. Amidst this evolving landscape, I remain confident in Fusion’s ability to capitalize on emerging opportunities powered by a strong foundation, agile culture and a clear vision. As many of you know, I am currently transitioning from my role and the process is progressing smoothly. This is the next step in our leadership journey. I want to assure you that the institution we have built together is resilient, well positioned and fully committed to delivering long term sustainable growth. Thank you and now I will hand over to my colleague Sanjay.
Sanjay Garyali — Chief Executive Officer
Thanks Divesh for setting the direction. Let me begin by expressing gratitude to all our stakeholders, internal and external who have helped me settle in my role. This is my first full quarter at Fusion and I’m pleased to share that the improvement as a team we saw last quarter has continued. These results reflect the strength of our refreshed operating model which incorporates environmental realities directly into our credit operations and growth strategies. Credit quality and profitability have continued to Strengthen for the third consecutive quarter. Credit cost declined to 178 crore from 253 crore in the previous quarter and 571 crore two quarters back.
While we maintained stage 3 provision at 97%, GNPA has further reduced 5.43% from 7.92% last quarter and NNPA stands at about 0.19%. Losses have narrowed to 92.25 crore compared to about 165 crore in Q4 driven by lower credit costs and improving NIMs, although operating expenses remain high due to our continued investments in field and tech infrastructure. On the most important metric, the current bucket collection efficiency, we have improved to 98.55 from 98.44% in the previous quarter. The flow forward rate as well from current to PAR fell further to 0.54% compared with 0.57% in Q4 and 1.8% two quarters back.
The current bucket cost retention now stands at 99.46% showing consistent improving cut improvement quarter after quarter. The new book with the extended guardrails dispersed since September 2024 is now at 44% of our portfolio and has maintained July current bucket demand efficiency above 99.5%. We’ve also seen encouraging growth momentum. Q1 disbursement stood at 950 crore. This was despite a drop initially due to the final guardrails in April and our own additional steps we had taken to strength customer identification. The composition of this disbursement, 79% of which came from Fusion and Fusion plus one clients and the remainder evenly split between new to credit and new to Fusion.
76% of our disbursements went to existing customers showing continuous step up month on month. Our state level strategy remains disciplined. Excuse me, with up ap, Telangana, Maharashtra and Assam in the grow category, MP Tamil Nadu, Bihar, Rajasthan, Jharkhand and West Bengal in maintain and Orissa in Gujarat in reduce. In July we disbursed over 400 crores with approval rates improving to around 20% from the earlier 12 to 15% driven by maturing credit intelligence. Our new products Ujala and Sugam launched in March designed to reward discipline, Fusion Plus Zero and Fusion Plus One borrowers now contributed 40% of July disbursements.
These pre approved offers reduce front end effort and improve conversion. Operational efficiency and risk discipline have also strengthened the customer load per relationship officer which now remains at 350 but upcoming technology enhancements will help increase this in the quarters ahead. Overleveraging, defined as having more than three lenders in our customer base fell from 20.6 in December to 17.6 in June and is still lower at about 14% in the non delinquent book in June. The dedicated collections vertical we introduced last quarter, over 75% of whose staff have now six months of tenure, is delivering results. Our specialized NPA recovery team continues to target customers with identifiable external transactions for sharper recovery.
Flow rates have improved across all delinquency buckets supported by targeted interventions, alternate channels and expansion of digital collections which have now grown to 21% in October which have now grown from 21% in October to 35% in June. On collections in the 90 portfolio which includes the return of portfolio, we were averaging 0.25% monthly cash recovery and this is showing month on month scale up through committed and definitive work, the MSME vertical is going to be emerging as our second growth engine. We have an AEM of 684 crores which is 91% secured and an average LTV of 42%, an IRR of 23%.
Operating across eight states through 105 branches. The business maintains a 50% approval rate and combines cash flow assessment with lending against self occupied residential and commercial properties. Our distribution reach, significantly broader than that of typical NBFCs, remains a key competitive advantage. Our people and processes remain a central focus. We have over 15,000 employees predominantly in customer facing roles. Attrition among branch managers and above is well controlled with 75% having more than three years tenure. Front end attrition has improved significantly over the last two quarters and we are continuing to invest in further improvements. Every branch now has at least one non sales resource to ensure strong nickel checker controls and governance oversight.
Enabling functions, Technology and HR remain strategic priorities. Our IT team continues to build core LOS components in house by leveraging partnership with industry leaders for speed and adaptability. The focus is on reducing borrower level risk and simplifying onboarding. Key transformative projects in onboarding and portfolio management remain on track for delivery by March 2002. Over the last quarter LND has been realigned under HR for sharper execution. We have added a senior leader to manage customer service and grievance redressal, both essential for retaining customers and protecting franchise value. In summary, Fusion has moved beyond firefighting. We are stabilizing, simplifying and strengthening as we enter FY26.
Our focus is on transitioning to a growth phase cautiously but with confidence supported by industry plus one guardrails, multiple credit led products and the advantage of a strong vintage in key MSME markets. With that I will hand over to Amandeep to take you through the financials.
Amandeep Singh — Interim Chief Financial Officer
Thanks Sanjay. Good morning everyone. I will take you through the key financial highlights for the quarter which mark continued progress in strengthening our balance sheet and reinforcing lender confidence. Firstly, talking about liquidity and cost of funds, we raised 1,220 crores through fresh funds between January 25 and July 25 including 32 crores through DamsMe and 81 crores via PTC. As of June 30th, 2025 we hold 724 crores in liquidity along with 1496 crores in sanctioned lines and 400 crores of balance call money from the right issue. Our capital adequacy remains strong at 29.52% post the successful completion of partly paid up right issue.
Lender confidence continue to be evident for quarter four FY25 from the initial waivers received which was 86% as of then the same now stands at 93% of the covenant breaches for quarter one FY26. We are on the track for similar waivers as previous quarters which is either received or in process. This support has come alongside fresh credit lines demonstrating the depth of our the average cost of fund declined 25bps q on q to 10.27% while marginal cost rose 160bps to 13.3% during the timing of new borrowings. NIM improved by 172bps q1q to 10.29% driven by higher lending yields and reduced stage three assets which lowered non recognition of interest income coming on ECL and asset quality.
We revised our write off policy from 240 plus GPD to 180 plus GPD in Q1 resulting in 486 crores in White House. This step ensured early portfolio hygiene and enhances forward looking credit quality. Post write off gross NPA improved to 5.4% and NNPA stood at just 0.2%. Credit cost was 178 crores, that is 2.3% of average on book loan ECL provisions total 579 crore down from 887 crores in the previous period. Stage 3 coverage remains robust at 96.6% and stage 2 and 3 coverage at 88.7% ensuring minimal future P and L volatility. These metrics reflect a conservative approach to recoverability and a resilient balance sheet now coming on.
Operating performance our cost to income ratio was 70.81% marginally higher than Q4 69.61% due to portfolio contraction and non recognition of income on incremental stage three assets. Operating cost stood at 10.1% for the quarter. Operating cost for the MFI business was 9.86% and MSME business 0.22%. The slight cost increase aligns with planned investment in connections, field operations, optimization and efficiency enhancements. The implementation of regulatory guardrails ahead of schedule in August 2024 and then subsequently in the successive quarters made onboarding more stringent leading to 14% quarter on quarter reduction in gross advances and asset size which also impacted our cost ratios.
Despite this The PPOP was 86.61% demonstrating underlying core strength and positioning us for further improvement on asset quality, gains flow and lead us towards profitability. Precisely Quarter 1 FY26 reflects disciplined execution on both sides of balance sheet, reducing funding costs, protecting margins and sustaining high provision coverage with strong liquidity, lender support and improving portfolio quality. We are Confident in our ability to continue narrowing losses and funding growth under robust guardrails. Thank you.
operator
So would you like to start with the Q and A?
Sanjay Garyali — Chief Executive Officer
Yes, please.
Questions and Answers:
operator
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 touchstone 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 will wait for a moment while the question queue assembles. We take the first question from the line of Abhijit T. Braval from Modilal Oswal. Please proceed.
Abhijit Tibrewal
So first thing is just trying to understand. You closed your opening remarks by saying Fusion is now outside the fire sighting mode and the focus in FY26 will be on cautious and calibrated grid. So if you could just expand on this a little bit. I’m just trying to understand. When we say we are outside the firefighting mode, are we now in a zone where we can say that the leadership hiring, particularly for people who will be reporting into you, is that complete now? And secondly, when we say cautious and calibrated growth, what will be the trajectory of growth like now in terms of disbursements for the next few quarters? And lastly, I mean, given that this quarter credit costs significantly declined, which is a positive, what will be the credit growth trajectory looking like in the next couple of quarters? And when can we get to profitability? Can that be in the second quarter or in the third quarter?
operator
Sir, actually, your voice is breaking.
Sanjay Garyali
I’m getting closer. Thank you so much.
operator
Again. The voice is breaking. No. Sir, would you like to rejoin?
Sanjay Garyali
No, it’s not better.
operator
Yeah, the voice is still not coming like it’s breaking.
Sanjay Garyali
Would you like maybe we can reconnect them?
operator
I’ll reconnect you. Ladies and gentlemen, please wait till I reconnect the management to the line. Ladies and gentlemen, we have reconnected the line for the management. Thank you. You may proceed, sir.
Sanjay Garyali
Yeah. Abhijit. Hi. Apologies for the brief interruption. Yeah, so I think your the first question. So three questions you have asked. I’ll first take on the most critical one, which is back to growth and cautious optimism. I think, Abhijit, what we mean as a team here is that we see multiple opportunities in the market. There are a lot of changes that are happening. The way the entire JG structure works, the number of people required. How do we manage ODs or overdue amounts which go beyond a certain day. Is there any cover that the front end guy gets or is the field collection the only way to go about? So there are multiple questions that we are looking at.
Then on top of that the challenge is that versus our existing customers. When do we start accelerating on new to credit and new to Fusion customers? I think if you look at the final guardrails have actually come in April. And I think it is prudent for any financial services company, not just microfinance with a new set of guardrails. Give some vintage before you start getting into let’s say either new to Fusion or new to credit or any customer which is little unknown to you. And that is why the entire focus is initially on our existing customers.
And this is not. And the guardrails that we have kept are not simple guardrails. They are very complex. But what it essentially does is that there is enough headroom within our existing customers to be showing growth for the next two to three quarters. I don’t think that. So right now I explained to you that 76% of our business comes from existing customers. Will it be like that beyond three quarters? I don’t think so. I think eventually we will have to come back to the right number is somewhere between 60 to 65% and 35% customers have to be from outside Fusion.
But I think we have three quarters for that the next three quarters there is sufficient growth that can come from existing customer scale up and the value that we are seeing on the existing customers in terms of the current bucket collection efficiency that is extremely encouraging. So that’s what. So I think from our current strategy there is enough headroom that is available for growing. Just to give you a number. The average number in the previous quarter that went by was close to about 310 crores in July we have already crossed 400 crores. While we are sitting on August we are seeing a 10% upside over July as well.
So that is giving us confidence and collection efficiencies are either improving or staying stable. So that’s your first one. The second question was on the leadership. I think that’s a process that we will continue to work on. There will be people who will be requiring the kind of skill set that microfinance requires will be very different from the erstwhile microfinance and hence we will borrow from other NBSCs, other financial services, maybe non financial services as well. But just to reflect on this, I think the way decision making happens in Fusion is not what Divesh or I decide.
There’s a core committee which does most of the heavy Lifting. There’s an executive council that we have which takes 95% of the decisions. People with very diverse skills, some of them have very large vintage in the organization. And I think that’s what both Divesh and I are relying on. If you ask me, my role is essentially as a catalyst or like a disruptor where I push them that what extra can we do. But I think most of the decisions, 95% of the decisions are taken by this team. So we will be in the process of hiring people, hiring skill set which maybe microfinance did not have at a certain point of time.
On the third thing, credit cost like you see, I think we are seeing extremely positive. We have shared with you the ECL provisioning. If you just put the numbers together the credit cost you can clearly see will come significantly down. And if, if you were to look at the Numbers which is 92 crore of loss, I think over the next one or two quarters the significant impact to this will come from the further reduction of credit cost. Now I cannot give you an exact forward looking statement that whether Q2 will be profitable or Q3 will be profitable.
And that is the reason why we have shared data with you transparently. Abhijit. I think if you just put this in a model and we have shared the flow rates with you I think you will yourself get the confidence from a direction that we are able to set up that profits could happen quicker than a lot of us expected. But I think most of the data we have shared very transparently and I think you understand how this modeling operates. I think you can put together when exactly will the profits come. But directionally I think as a team we are very happy to share with you that we are moving towards profits very soon.
Hope I have answered your three questions.
Abhijit Tibrewal
Yes, thank you so much. And let’s run one last question. I had. I think during our opinion you also said that APN Telangana will be among our growth states. I mean of late, right? I mean especially in this quarter when companies reported they have started talking about some weakness that they have started seeing in APN Telangana. Some of it is also to do with the fact that MFIs as a whole, right? Were not really present in a big way in AP Telangana. And it has started only in the last one year. So what is it that we are seeing in APN Telangana? If you could just elaborate on that.
And lastly on the fee income side, are we taking some steps to improve the fee income stream in the coming years?
Sanjay Garyali
Okay, so I’ll take the first question which is API and Telangana I think API and Telangana. So the way we are operating I think other than two states which we have identified which we think are broadly over leveraged at states we do not see structural issue of in any of the states and we have identified two states as reduced states. Other than that we do not see structural issues in rest of the states. Now I think and there will be cycles in states there will be cycles at let’s say at a district level. There will be cycles at a zone level.
I think what we are very clear and we have realized I think this is a learning that has come to us is that the cycle comes towards the fringe customers and it doesn’t come across the good paying customers. If you see our strategy it is the guardrails are industry plus one which means we’ll be a little tougher than the industry on ourselves in terms of credit. So if you see I have explained to you that between Fusion, technically Microfinance allows the guardrails are up to let’s say self plus two. So up to three lenders but 80% of our business happens just in one or two lender because we think that it is prudence to ensure that we work on less leveraged customers.
So I think whether it is apn, Telangana or a lot of people are talking about BR from that perspective I don’t think the problem is at a state level. I think problem is at a customer level. And if we continue to keep our watch on leverage of customers I think we’ll be through other than these two states which we have identified as reduce on the fee income we looking at. So they’ll be. So give us some time. We will give you some good news on fee income in future that what are the opportunities we are looking at.
We have already applied for our corporate agency license for insurance. We will come back to you and the progress is significant. We will come back to you in the next quarter on what the status is on that.
Abhijit Tibrewal
Got it sir. Thank you so much for.
Sanjay Garyali
But I think if you see that the way we are operating on our there is some amount of leeway which is also available on our existing book where we are also focusing for some additional income and not just relying on outside income which will start coming in let’s say a quarter or so.
Abhijit Tibrewal
Got it. This is, this is very very useful. Thank you so much sir and I wish you and your team the very best.
operator
Thank you. Before we proceed with the next question ladies and gentlemen in order to ensure that the management is able to address questions from all the Participants in the queue, please limit your questions to two per participant. We take the next question from the line of Viral Shah from IIFL Capital. Please proceed.
Viral Shah
Hi, thank you for the opportunity. Two questions. One is we wrote off nearly 4% of the book in this quarter. Despite that the share of customers who have loans from say Fusion + three or more lenders that has not actually declined as much on a sequential basis. And the second question is also relating to the same slide wherein we have given numbers of the unique to Fusion customers and those things. So over that I am seeing that on a sequential basis they’re unit to fuse in customers are reducing. Also the customers, the Fusion customers within the smaller ticket size bucket that is also reducing sharply.
So are we again starting to see some signs of say leverage now again getting to rebuild for all of these customers? And also with regard to the approval rates that saw a very sharp jump in July. So if you can just speak on that, that would be helpful.
Sanjay Garyali
Okay, great. So I think viral first on the write off, we essentially wrote off what we thought was prudent and entire. If you see the entire write off policy we have kept at about now 180 days because we have realized the recovery percentage in those buckets. So on the. However, if you. Your second question which is let’s say unique to Fusion, if you look at our overall base of about 1.7 million customers, that’s about the base that is available between Fusion +0 and Fusion +1. If you look at. So we have given to you the overall portfolio.
Now when you look at on the overall portfolio this greater than two lenders is significantly come down from close to about 31% to 17%. Now this is on the overall book. This also includes the delinquent portfolio. So March 24 was 31.5, which is greater than fusion plus 2. And now we are at about 17.6. Now this is the overall portfolio if you remove the right of portfolio and if you remove the delinquent portfolio. So you look at at the current book alone, this 17.6 is about 13%. And we have, we are looking at the flow rates of this 13%.
Clearly this 13% is behaving as good as the customers which are fusion plus two or fusion plus one. So it is not that all of fusion plus greater than two is bad. But the challenge is that we are also keeping a watch on Fusion Plus 2 with retail leverage. So if you go down and look at our customers having with us greater than 60,000 to 1 lakh exposure in that same table where you saw fusion plus 1 and fusion plus 2 you see that we have made serious progress in ticket size between 40,000 to 60,000.
So which was initially 19% are now 21% and 3.2% has moved to 12%. These are the two categories where we see much better credit separation. And we will continue to focus on this.
Viral Shah
The second question before you go to the third question, just few clarifications. So this the relationships that we have this includes the right of customers and portfolio.
Sanjay Garyali
So 90. This includes the delinquent portfolio 90 plus.
Viral Shah
But it doesn’t include the right of.
Sanjay Garyali
It does not include the right of portfolio but in delinquent portfolio.
Viral Shah
So if then my question is with regard to this 4% write off in this quarter then and the reduction in the fusion is only 50 bits. So 3 1/2% of the write off has happened in the customers who have less than three or actually less than three customer relationships, lender relations.
Sanjay Garyali
So what we will do is we will give you a complete sense on this. We have complete data. But if you look at against let’s say similar period last year, okay on Fusion plus three because that is also like to like comparison. That includes the overall book without the write off was close to 30% right now if you see before write off was about 18.1. Now the what what you have to realize is that the guardrails came into effect from August September 24th. So the customers which had to go bad in Fusion in greater than fusion plus 2 already had a window of 6 months to go bad.
And their actual progress, their deterioration happened between August to March 25. The most stringent guard list for existing customers which came in April 25th. That further strength that further caused some disruption. But most of it most of these customers were not available for for further funding to the market. And this happened from August September 24th. So most of the so now the customers that you have in your book are not just defined by Fusion plus one and Fusion plus two. The sense we have given is only Fusion and Fusion plus one. And that is why the third question is very relevant that has the approval rate come only from giving more to Fusion +1 and Fusion +0? No, those approval rates have come from three clear guidelines.
Customers who do not have external exposure at any point of time more than a certain amount. And that is much lower than the what the MPIN guardrails have been set up their overall retail exposure and what kind of assets they have lending with. And then is the third one which is Fusion. So while we have shared with you Fusion alone. That is not the only criteria or that is not the only credit separation point. So and the approval rate increase has come from two areas. One, this new product which came in two now we have pre approved products to the front end.
So the entire guardrail testing we are doing at the back end which includes some stringent guardrails on overall retail exposure and then going and giving to our existing front end sales guys so they don’t have to go through the entire process of customer identification. So while I’m talking this approval rate is inched further by about 1 or 2%. If you see the industry is at about 28 30%. I think we were lagging on this respect because because of two reasons, because of our IT that was in process, the capabilities that we were developing and this process of pre approval which lot of progressive players in the market were doing.
So it is not that we have gone aggressive and the approval rates have not come from some aggressive segment that we have identified.
Viral Shah
Got it Sanjay. Just on with my second question which was there, what I was referring to is the Fusion customers over there. I see that in the March quarter the less than 40,000 ticket size bucket was 83%. That is now down to 67% and whereas the 40 to 60,000 has gone from 12 and a half percent to 21% and similarly in the 60 to 100,000 range. So what has driven this? Is this on disbursement basis or on a portfolio basis?
Sanjay Garyali
Correct. So this has essentially happened because of the initial because the second cycle has significantly gone up. If you see the existing customer which used to be about 50% is right now contributes about 76% which means that the customers which have been with a vintage of at least 14 months or 16 months they are the customers who are returning back to us. So the ticket sizes go up because now you are giving not to entry level customer, you can giving to customers who are tested with you for 14 months.
Viral Shah
And what is the ticket size in the second and the third cycle now and what it was say six months.
Sanjay Garyali
The ticket size in the second cycle for a regular customer continues to be the same. The percentage of second cycle customers has gone up. So let’s say my second cycle customers had a 55,000 ticket size or a and my first cycle had 40,000 ticket size. My initially it was equally divided 50, 50 between first and second cycle. Now close to 70%, 74% customers are in the actually more than that close to 77% customers are now in the second cycle. So the Weightage of that has gone up.
Viral Shah
Got it. And just last if I may, a data point. What is the X bucket collection efficiency in July?
Sanjay Garyali
So the ex bucket collection efficiency in July continues to be same that we exited June across states which was close to about 98.5 roughly in the same range. There is some state which is 10bps up or 10bps down but roughly we are in the same range. And the same is true for the net roll forward rate.
Viral Shah
Thank you very much.
Sanjay Garyali
This is at a portfolio level. The question that you had asked. This is not. This is the data that you are referring to is at a portfolio level.
Viral Shah
Got it. Sanjay. Thank you very much.
operator
Thank you. We take the next question from the line of Rajiv Mehta from yes, securities. Please proceed.
Rajiv Mehta
Hi, good morning. Congrats on good collection performance. So may again just taking forward the collection efficiency point and the net addition in the first bucket. Sir, you are saying that it’s been stable in June and July. But when you look at the portfolio churn and the portfolio mix, the new portfolio which has been originated post the guardrail which is much better in quality where the X bucket Collection efficiency is 99.5 that will keep on climbing up as a proportion of the book then shouldn’t be, you know, your X bucket collection efficiency and the net roll forward rate in the first bucket should also improve commensurately with that mix change in maybe July, August, September.
Sanjay Garyali
Okay. Is that your only question? Is there any?
Rajiv Mehta
No, I, I do have. So that is one on how the net flow forward will keep on climbing. And in terms of subsequent bucket floors, is there any scope of further improvement? Because we have seen the bucket one onward forward flows have improved in this quarter. Given the effort that we are putting on the collection, do we see the resolution rates getting better? And third is on the PCR on the stage two and stage three ETL coverage. You know, we have been maintaining very high coverage of 72% and you know, 97% maybe because we are, you know, we are seeing, we were seeing higher flow than we wanted to write off and we were wanting to take, you know, concurrent provisions.
But any thought process as the collection environment normalizes in the next 2 3/4, would you want to maintain such high coverage on stage two and stage three going forward also?
Sanjay Garyali
Okay, so I take the first two questions. So one is on the current bucket collection efficiency. Let’s say if you see the flow forward rates and your question is that because your new book is growing currently, the new book currently is at about 44% what kind of differentiation you are seeing between the old book and the new book and the weighted numbers they s hould show us improve. Yeah, agreed. Now if you see the previous number when we closed the March quarter was at about 98.44. The average was 98.10. The endpoint was 98.44. Now the same collection efficiency if you look at in quarter one is 98.54 which means that it’s gone up by about 11 bits. The flow forward rates have improved and both the if I give you the old and the new, the old collection efficiency, the new collection efficiency continues to be at about 99.5, 99.5 plus minus and the old collection efficiency is at about 98.25. So it is is varied between the Same range between 98.2 to 98.25.
It is not gone below 98.2 but we are seeing how some of it we can increase to greater than 98.25 because 60% of the book is still there. So there is improvement that you see. We are confident that this month there be will be this quarter there will be further improvement on both bucket zero and bucket one. There are some changes that we have done how we look at the initial bucket allocations. We want to experiment it and then come to you maybe during quarter two. Results we will share with you. But we are confident that the kick in of this change of book will start seeing and same. So the flow forward rates will keep on reducing.
Devesh Sachdev
So Rajiv on your last point which is on the ECL and high provisions which we have keep which we are keeping on stage two and stage three. So you’re right. You will also notice that you know we still continue to hold this close to 60 crore of management overlay. So I think it all depends on the next few quarters how our asset quality evolves and overall metrics, delinquencies and everything portfolio metrics improve. So we will be releasing some of this in a calibrated manner. But I think that’s for future once we because we have some internal targets in terms of how we look at the overall collection efficiency and the operating metrics.
So this will all depend on that how we will you know be slightly become more flexible in terms of the provisioning which we are doing in both stage 2 and stage 3.
Sanjay Garyali
And Rajiv 1 on your point which was which I thought is important to highlight. You asked about the higher buckets and the collection flows there. While you see an improvement we are very confident that what you see right now is just the buckets between 30 to 90. We have also, I have also in my commentary explained to you that in 90 plus, including write off, the cash collections were close to about 0.25% monthly. We see us, we continue to see month on month significant traction of this. And there will be significant cash collections which will come from 90 till write off because of the investments that we have done on our collections team and people.
Rajiv Mehta
Got it. Sir, can I ask one more question? One last question, please?
Sanjay Garyali
Okay. Yes, please.
Rajiv Mehta
Yeah, just quickly, just quickly on the cost structure. So now that, you know, we are fully invested for collections improvement and maybe we are, you know, kind of not absorbing the film cost. So as the growth comes about, as we are picking up on disbursement and the accrual rates are increasing, moving, can one expect that a lot of, you know, operating leverage of growth to flow into P going ahead and has there been any changes in the lending unit which would also help us in delivering better in the coming quarter?
Sanjay Garyali
Okay, so absolutely you will. So the cost will not go up linearly. That’s a confidence that we can give you that with disbursement kicking in. It will not be that we will require more people linearly to do the same amount of disbursement. And there are multiple IT developments we have done to ensure that the heavy lifting that the front end guy does is much lesser. So it will not be that. So you will get. We will show operating leverage in the subsequent quarters.
Rajiv Mehta
Okay, thank you and best of luck.
operator
Thank you. We take the next question from the line of Pranav Gupta from Aones Alpha Investment Managers. Please proceed.
Pranav Gupta
Yeah, hi, good morning and thanks for the opportunity. Congratulations on a good collection performance. A couple of questions, some have already been answered, but a couple of questions, one is continuing from the previous question on costs. So you mentioned a couple of things in your opening commentary where, you know, you believe that the load of the field officer can be reduced through the tech initiatives that we’ve taken and you believe that this can go up. The accounts handled by each field officer can go up materially from here. How should one think about this? Maybe not just for the next couple of quarters, but probably going forward from here as well.
Where do you see this metric settling eventually based on the tech initiatives that we have taken? And second bit is on the OPEX where you mentioned it will not go up linearly, but what can one expect through this year in FY26 on an absolute basis? You can give some guidance on that. That’s the first question Pranav, I will.
Devesh Sachdev
Partly answer this and then Sanjay will more expand it further. So I think in the now the changing environment, the whole model changing rather than looking at the number of customers handled by a field officer I think. We should more important data point would. Be the amount of the overall outstanding which is handled by, you know, by the, by the field officer because the overall focus is moving towards in terms of your existing customers, it’s moving towards, you know, Fusion one and Fusion two and where you can really see do slightly higher amount. So I think that’s the right metrics to look at and that’s what we are focused on. That overall outstanding per field officer should be the metric we should look at rather than the number of customers handled by a field officer.
Sanjay Garyali
Yeah, yeah, absolutely. So yeah, so I think that is one that. Sorry, you have something to. So yeah, so that is one key thing. The other that you see that if you look at the. Just to give you a certainty how we are looking at it is that right now about 94% of our entire demand for the day or demand for that particular day comes on the same day. Most of it comes to the center meeting. So I think one reinforcement that we want to give irrespective of and we are not concerned with the views that others have.
I think we understand Fusion as a company understand this business very well. The center meeting concept we are figuring on how to strengthen. 94% of the demand that we get is collected in the same day. Another 4% is collected in the same week. About 0.5 to 1% goes to the next week onwards. Now there are two things that we are looking at. So one, like Divesh already explained the value part. The ticket size will keep on increasing. The second we have seen that see the majority of the customers that a field officer manages are in bucket zero and bucket one.
And there is some experiment that we are doing that certain buckets we restrict with him and the other buckets we give air cover through. There are right now multiple opportunities without really having people or without having warm bodies. How do we do the other part? So the from a next and this I’m talking about three to six month perspective, I think if we are, if there is anything that we are losing sleep on right now is that how do we better utilize the expenses that we are invested in specially the people that we are. We are like 24 by 7 working on that and ensuring that.
How do we better utilize those people and how do we restrict them to a certain work area which they are very good at and rest. We just move out of them and it happens automated way more of it we will talk about in the subsequent quarters.
Pranav Gupta
No fair. Any, any absolute number guidance that you can give or maybe it’s too premature to think about.
Sanjay Garyali
You can assume see we can’t give exact guidance but I’m saying that’s why we are sharing so much of information with you so that you can model it. But the like I said we are we are constantly pushing ourselves. We are cognizant of the fact that OPEX needs to to come down. Wherever we are seeing processes which are obsolete and non productive we are cutting it without even thinking twice about it. So and I think that is one area we will question ourselves day and night and you will you should see the impact of that in the subsequent quarters.
Pranav Gupta
Sure, sure. So second question is on the on the Fusion plus zero customers and the data that you’ve given around Fusion plus one and two and like one of the previous participants also asked, we have seen the exposure increase in the 40 to 60 and 60 to 100k bucket on a QOQ basis and this is obviously driven by the fact that your disbursements to existing customers share has increased significantly. Whereas if you look at Fusion customers having MFI exposure, those markets have remained remain largely stable not just on a quarter on quarter but on a yoy basis.
So when I think about the incremental disbursements where the share for Fusion +0 customers or other existing diffusion customers has remained in the 70 75% range, is it fair to assume that the focus is more on unique to Fusion customers versus one Fusion plus one or two or three? Is it a more balanced approach on both those customer buckets and how should one think of that mix incrementally?
Devesh Sachdev
So Pranav, I think again Sanjay will. Add something but I will talk more. On a strategic point of view. So if you look at the microfinance sector and especially our strategy in the sector prior to this credit cycle was because there were no garbage. Fusion was the only company which had a guardrails and there was a number of lenders in terms of overall indebtedness and then previous crisis, whether it was events after Demon or Covid have shown that and our focus was that because there is no guardrail being followed by the number of lenders and the amount we were keeping the ticket size lower. Okay now the overall landscape is changing.
The landscape is changing in a manner where everyone is saying that look, now we are more confident that as the sector every player including the banks who are in the retail microfinance. All have agreed. All. Let me tell you everyone because I’m also on the board of MFIN where there is a. We see that everyone is becoming more responsible. Everyone is wanting to follow these guardrails. So how do. And then now it makes sense for Fusion when we will be focusing more on Fusion, retaining our existing customers that we actually move up the ladder in terms of the ticket size because now that risk of the customer getting more loans or from a certain more than certain amount has gone down more at a sector level. So I think that that’s what Sanjay. Sanjay was trying to tell you that there was a certain strategy prior to this credit cycle and now there is a certain strategy after the guardrails have come in and when we are coming out of this credit cycle.
Sanjay Garyali
Yeah. And finally on this, this is a short or a medium term strategy. 76% like I said is not going to be the status quo. I think it should be close to about 65%. But you understand that coming out of a tough credit cycle and I’m not saying just the microfinance industry, the entire financial services, I think it was prudent to focus on existing customers. That lowers your cost of acquisition, you know, with certainty which are the customers you can go after. But on a status quo, I think somewhere by end of the year, year what we intend to do is about 65% is fusion.
35% will be new to Fusion and which will be equally divided between new to credit and new to Fusion. But whether we are doing new to Fusion or Fusion, the focus is on number of lenders and we are pushing this that the external retail exposure and number of lenders. While the industry are allows us to go to three, we will continue to keep at two itself. So but this is like you are right. This is a short term till let’s say another one quarter or two quarter. You will see us going by end of the year once the guardrails.
Once we are more confident on the guardrails to new to Fusion or new to credit. Because I think that’s the way to. That’s eventually the way to grow. Just Fusion customers will drive after some time.
Pranav Gupta
Right. So just one last question on the MSME book, given a lot more details this time around but just you know the way to think about this book and its overall proportion in the AUM going forward. Where do you see this going to and is it, is it the sort of new driver for growth incrementally or is it, does it remain like a supplement to the MFI business.
Sanjay Garyali
So the book is. You’re right. So the book is very small, close to about 700 crore. You understand we all know the opportunity in the market. We already have a chief credit officer. One of the reasons we wanted credit was because and is because we wanted to grow this book other than the extended guardrails in mfi. So we are this will grow obviously much more than what it was. And the right to win that we have here is both the distribution. We are clearly in markets which are non competing with the regular NBFCs and the banks.
And that’s our strength along with the credit assessment products that we have which have delivered over the last three years. So we will. We may not go to too many branches. We close to have about 100 branches and we find feel that about 100, 150 another 50 branches in the next two years should take us to a decent portfolio size. RBI has recently, you know that the qualifying mark is now 60%. So that gives us more headroom. But I don’t want to give you an unprepared figure right now. We are in the process of working on this.
But yeah, you will see much significant growth and we will. This is the first time we have spoken about msme. You will hear more about MSME in the subsequent quarters.
Pranav Gupta
Sure sir. Thank you so much and good luck for future quarters.
operator
Thank you. We take the next question from the line of Bhavesh Kanani from Swan Investments. Please Prase.
Bhavesh Kanani
Thank you for the opportunity. This one is on the marginal cost of fund which is high at 13.3%. Just some color on that. If you can share the duration of new borrowings that we have added and to give wide difference between average cost of borrowings and marginally when you know like for FY27 directionally that clearly implies that we should expect a significant margin pressure. That is one if you can help us understand that directionally and two on opex you know there are a lot of moving parts we are going to ramp up new to credit or new to Fusion customers as we you know manage the stress on the book.
There is some investment on the SME book. While I understand this moving parts make giving guidance difficult. But using Q1 as a reference point should we expect cost to income or OPEX leverage AUM perspective improvement from here on or there’s risk to this living as well.
Sanjay Garyali
Okay, great Bhavish. So I think the first one the marginal interest on borrowing. So I think instead of that let’s look at the names because that’s what is critical I think. So there will be three things, two of them positive on Nim and the third one is cost of borrowing on the NIMs. So one, while Aman will elaborate some of this higher cost of borrowing comes because of lower tenor funds that we have got. However, on the NIM part now there are three things driving which is the reversals that we do. The second is the interest on the book that we are charging on disbursements that we are charging.
And third is the cost of borrowing. Now cost of borrowing we think that has stabilized and eventually we don’t see too much of pressure on cost of borrowing. And Aman will elaborate on the interest on fresh disbursements. We improved a little in by around May. So you have not seen the full impact of that. That’s like 40% impact you’re seeing this quarter. You will see the full blown impact of that. And third is the interest reversals which will which are drastically coming down. So I think NIMS that we spoke about will essentially be in the same range and there will be no pressure on NIM.
So NIMs roughly close to about 10.25 to 10.5 plus minus 25 bips will remain in that range on the specific on so and I think that is a more important part to look because because there are three constituents of that on the cost of increased cost of borrowing like I said it will be more or less stable. But Aman will talk about the constituents of the cost of borrowing.
Amandeep Singh
The cost of borrowing has been increasing this quarter due to new loans which we have raised on a means as per the market practice whatever rates are going on. So we have taken the loans on that only and the tenure of the average margin cost of borrowings is around 18 months. So somehow some loans we have taken over a shorter period. So that’s why expenses part it is looking higher. But later on during the part of the year if you see then our cost of borrowings it is on the same rate as that of last year.
So it is between 10.2 to 10.3. So in the coming period cost marginal cost of borrowings may be we will get it streamlined in the coming quarters. So it will be average cost of borrowings between in the range of that only that Sanjay has told. So it will not impact much as in the increase of finance cost during the year. It will remain the same as old higher rate of loans which we have already taken that is coming down. So new cost of borrowings will be streamlined in the coming part of the years.
Sanjay Garyali
The second same question on opex. So see it is not that we are ramping up new to credit. We are not ramping. I am not saying that we are ramping up new to credit. We are right now holding back new to credit. So we are getting significant demand. But we are holding it back because we do not think that we have sufficient guardrails and the current guardrails that the market has. We are working on it in about I think a quarter between our CRO and the chief credit officer. I think they will be. We will be.
They are working hard on this. I think we are. I am putting tremendous pressure on both of them that we have to get an answer to this new to credit and new to Fusion. And I’m absolutely confident that by end of this quarter, somewhere in September we will have a lot of answers. So we don’t really. So it is not essentially a ramp up. It is customers which are in our existing villages and countries and we just need to filter them properly. Right now we do not have the filters on the cost to income. I’ll give back to.
Amandeep Singh
Actually it will show improvement.
Sanjay Garyali
Yeah. On cost to income. See there is no. We don’t see any heightened cost coming because of disbursements going up or because of msme. Let me tell you between last three months MSME costs have significantly come down on absolute terms. So there are multiple things we are doing on MSME to ensure that the productivity goes up and absolute terms cost you will see coming down. And I have already explained that the 105 odd branches that we have or 91 branches now that we have are operational branches vintage greater than two years. So to get them into action there is no real cost that will be required.
Rather there is some optimization that we are doing which will further absolute terms get MSME cost down. So you can safely assume that because of our. I won’t say ramp up but increase of disbursement the cost will not go up in absolute terms. OPEX will continue to keep trending downwards in this quarter.
Amandeep Singh
Also you have seen that opex is around 10.2 crores in the last quarter. It was. In the absolute terms it is 206 crores. 206 crores. So it has increased by 3.6 crores in a quarter. That is not much. And we will, we are in the position of streamlining the opex so it will make may more or less. It will reduce or it will not go very high.
Bhavesh Kanani
Okay, wonderful. Would you to quantify the reversals in interest income for the part.
Amandeep Singh
Interest income reversal on active portfolio is around 25 to 26 crores excluding the write offs.
Bhavesh Kanani
Wonderful. Thanks. Thanks for the answers.
operator
Thank you, ladies and gentlemen, due to time constraints, that was the last question for the day and would now like to hand the conference over to the management for closing comments. Over to you, sir.
Sanjay Garyali
So thank you so much. I think between so two things I think critical here, I think Divesh already spoke about it. I think the transition between both Divesh and me is happening very smoothly. And I’m very confident the way the entire senior management at Fusion is rising to the occasion and how they are taking extended responsibility is making both Divesh and my job actually much easier. And we can focus on some critical areas. Some of the things that we are getting as inputs from each one of you will. You will see us sharing more and more information with you and more transparently.
So our future plans will be more clearer to you in terms of how do we model or how do we expect. But we are absolutely confident, we understand that one of the key measures is to get back to profitability quickly. And I think everything is being invested towards ensuring that we reach there very fast. So I think with all your wishes and your blessings, I’m absolutely confident that we’ll be there very soon. Thank you so much for your patience and presence.
operator
Thank you. On behalf of Fusion Finance Ltd. That concludes this conference. Thank you for joining us. And you may now disconnect your lines.