Fusion Finance (NSE:FUSION) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Fusion Finance Limited Q2 and H1 FY 'twenty seven 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. Please note that this conference is being recorded. I now hand the conference over to Ms. Hanishi Shah from AddFactors PR Investor Relations. Thank you, and over to you. Thank you,. Good evening, everyone, and thank you for joining us on the q two and h one f r twenty seven earnings conference call of Fusion Finance Limited. We have this company's senior management team with us on this call. Before we begin, I would like to remind you that certain statements made in today's discussion may be forward looking in nature and may involve certain risks and uncertainties.

0:58 A detailed statement in this regard is available in the q two FY twenty seven investor presentation, which has been uploaded on the stock exchanges and the company website. I now hand over the call to mister Sanjay Varyali, MD and CEO of Fusion Finance Limited to begin with the proceedings. Thank you and over to you, sir. Yes. Thank you, Anishi. Good evening, everyone. On behalf of the entire Fusion team, I would like to extend our festive greetings to you and your families. If there is one thing the last few quarters have reinforced for us, it is that in a constantly evolving environment, it is more important to navigate by the compass than by the clock. There are several moving parts around us, industry dynamics, customer behavior, credit conditions and emerging growth opportunities.

1:47 When we laid out our priorities, we were clear about four things: restoring growth, strengthening credit discipline, delivering sustainable profitability and building a more diversified institution. Those priorities remain our compass. We also articulated three financial milestones: an AUM ambition of INR 10,000 crores credit cost of 2% to 2.5% and an exit quarter ROA of 4%. I'm pleased that we have made meaningful progress on two of these ahead of our original time lines. Credit costs are sub-two percent and we have already achieved an annualized ROA of approximately 4% this quarter. The progress gives us confidence in the direction of our business even as we remained measured about the pace of growth.

2:37 Q2 performance. Our disbursements stood at INR1726 crores, representing a 33% year on year growth, while remaining broadly flat sequentially. The AUM subsequently increased to INR807 crores, 14% year on year growth. During the quarter, five of our markets experienced heavy rainfall and floods, resulting in temporary disruptions to customer accessibility during July and August. However, recovery through September was encouraging and collection efficiency returned to 99.75% with net flow rates falling below 0.10%. This is a testimony to our well disciplined approach towards customer acquisition. Portfolio quality continued to improve with GNPA declining to 1.6% from 2.5% in the previous quarter.

3:28 Importantly, even if we consider the INR54 crore ARC transaction as a part of the loan book, the GNPA would still be 2.28, reflecting an improvement over the previous quarter, 2.5%. Credit quality and customer leverage. We believe sustainable credit performance begins at origination. One of the most important changes we have made is how we assess customer leverage and repayment capacity. 83% of our onboarded customers in MFI have no more than two lending relationships, including Fusion. This is a deliberate choice. We continue to monitor lender count indebtedness, prepayment capacity supported by differentiated credit templates. Our on ground credit assessment program has now expanded from approximately 200 branches to nine fifty branches now, giving us greater control over customer selection.

4:22 These initiatives are designed to strengthen the quality of our new origination. Early bucket collection performance has remained resilient. Same day ex bucket collection stood at 97.9% with monthly gross and net collection efficiencies at ninety nine point seven percent and ninety nine point eight four percent, respectively, on the quarter basis. Our objective is not simply to maintain strong collection performance today, but to build a portfolio that delivers more predictable credit outcomes over time. Recoveries and legacy portfolio. Alongside strengthening new originations, we continue to address the legacy stress portfolio. You are aware that we brought recovery activities for the 90 DPD portfolio in house supported by dedicated teams, analytics and specialized recovery capabilities.

5:11 We are also deploying structured interventions, including local dollars, legal officers and legal notices wherever appropriate. During the quarter, recoveries from the 90 DPD portfolio exceeded INR30 crores, including INR21 crores from return of accounts. While the new book will determine our future earning quality, recoveries from the legacy portfolio can progressively unlock additional value. Growth and diversification. Turning to growth, we see three complementary opportunities. First, core microfinance will deepen our presence where portfolio behavior supports growth while continue to maintain focus on disciplined expansion. Second, premium JLG, which is income levels greater than 3 lakhs and individual lending. These products and segments allow us to deepen relationships with eligible customers and serve differentiated credit needs. Our Vishwas product that we had shared with you, which we launched in the last quarter has made an encouraging start accounting for 20% of MFI disbursements during September and now in October.

6:16 Third, secured MSME. We are expanding our reach by leveraging our existing microfinance infrastructure. Approximately 10% of MSME disbursements are now originating through the MFI branch network and we have expanded from 50 to 100 MFI branches acting as MSME spokes. Our focus remains on cash flow based underwriting and secured lending to suitable customers. The strategic advantage of these three businesses that we just spoke about is to allow us to serve a broader range of customer needs through infrastructure and customer relationships we already have established. Operating leverage and technology. We are pursuing four interconnected operating initiatives. The first is improving branch productivity and operating leverage.

7:02 The average MFIUM per branch has improved to INR 5.4 crores from INR 5.1 crores. We are rationalizing approximately 102 branches while planning to open another 50 branches in markets which offer strong opportunities. The second is generating growth through our existing distribution infrastructure. By expanding the premium GLG individual lending and MSME sourcing through our network, we aim to increase the earning capacity of our branches without a proportionate increase in infrastructure or operating expenses. The third is strengthening credit underwriting through differentiated credit templates and more rigorous customer assessment. This should allow us to pursue growth opportunities while maintaining discipline around customer leverage and repayment capacity.

7:50 And the fourth is building stronger in house recovery capabilities, particularly for the harder delinquency buckets. Together, these initiatives should support greater productivity, more consistent credit performance and better operating leverage over the medium term. Technology will be an important enabler of this transformation. Our new LOS and LMS systems have been implemented now while iTalk across 15% of the branches with broader transition targeted for completion before the financial year end. We're also developing AI capabilities across collections, customer service and credit assessments. Our objective is to create a more scalable operating platform with greater underwriting consistency, stronger controls and improved productivity.

8:36 Our way ahead outlook and priorities. Our medium term ambition remains AUM growth of 20% to 25%, ROA of 4% plus and credit costs in the range of 2% to 2.5%. We are entering the next phase of growth with a focus on building a more diversified, productive and resilient franchise. This will be supported by disciplined underwriting, very strong credit costs, continued investment in technology and strong commitment to sustainable and profitable growth. Our INR 10,000 crore AUM ambition remains firmly on track as a medium term objective. The disruptions during the first half have led to a slight calibration of the time line. We are moving to integrated branch led model, which will cater to our core lending products, which are as follows. First, our GLG products, which is going to be the major portion of our business. We will continue to evolve underwriting standards based on incremental data and experience.

9:32 Second is premium GLG borrowers, income greater than 3 lakhs, borrowers which have graduated and whose income has increased from the 3 lakh limit will be offered the loan based on repayment history and track record. Third is the individual loan product for small businesses under the MSME secured product umbrella. This allows us to diversify our lending portfolio by benefiting from capital efficient expansion and operating leverage. Hence, our branch infrastructure will enable growth and diversification vision of the company, enhancing operational efficiencies without any increase in OpEx. The early improvement in Q3 disbursement momentum with 10% to 12% growth over the previous quarter average is encouraging and reflects the gradual improvement in our operating environment.

10:22 While this provides a starting point, we remain disciplined in translating this momentum into sustainable portfolio growth, in line with our medium term ambitions and underwriting standards. With that, I will hand over to Krishna to take you through the financial performance in greater details. Thank you. Thank you, Sanjay, and good evening, everyone. I'm pleased to present our quarter two financial performance. Our quarter two performance demonstrates clear improvement across key businesses and financial matrices, including growth, margins, operating efficiency, asset quality, cost of borrowings and profitability, reflecting disciplined execution and a focus on well capitalized growth. Asset quality continues to improve during the quarter.

11:08 Our gross NPA stood at 1.6 as of 09/30/2026 compared to 2.51% the previous quarter, while the net NPAs stood at 0.11%. If we would not have done the ERC transaction, our gross NPAs stood at 2.28%. This improvement was driven by strong collection efficiency, healthy recoveries and seasoning of a higher quality portfolio. Credit costs remained constant on a sequential basis despite floods in the five states. During the quarter, company strategically decided to sell secured loans of INR 54 crore, including INR 3.5 crore of return of loans to asset reconstruction company. This will enable the company to impose surfacing and get the recoveries quicker.

11:59 Our focus has been on reducing the cost of funds and maintaining a stronger liquidity buffer. These initiatives are now clearly visible into our funding matrices, ALM position and margin profile. One of the most significant achievement during the quarter was the continued reduction in the marginal cost of borrowing. The marginal cost of borrowing declined to 9.35% in quarter two of FY 'twenty seven from 12.16 in quarter two of FY 'twenty six, representing a year on year improvement of two eighty one basis points and 74 basis points improvement on quarter on quarter basis from 10.1% in quarter one of FY twenty twenty seven, which was last quarter.

12:44 The marginal cost of borrowing stands at 9.39% for the quarter, even when we exclude the borrowing through CGS scheme to for MFI. This makes the fifth consecutive quarter of decline in marginal cost of borrowing. In this quarter, we have raised $3.20 crores through PTCs, which enhanced its share in overall borrowings booked to double digit, which is 10%. The company secured PTC funding at an all in cost of around 8.5% during the quarter. We have further scope to increase the PTC transactions in coming quarters, and that will help company to keep the marginal cost of borrowing in control in an increasing interest rate scenario. In addition, we are working to reduce reliance on direct assignment transactions quarter on quarter. The delay outstanding as a percentage of AUM has come down from 13.75% to 12.65% last quarter.

13:44 We maintained strong negotiating leverage and adopted a disciplined cost focused approach to funding decisions. In last quarter, one of the key priorities was to strategically utilize the CGS MFI II scheme, ensuring that its benefit were maximized through prudent allocation and a lower all in cost of borrowing. As a result, the company accepted selected sanctions aggregating to about INR $4.68 crore at an average all in cost of 9.23% out of the available sanctions of about INR 1,100 crore under CGS scheme. We maintained a firm stance of not taking sanctions that did not align with company's economic value and carried unfavorable commercial terms. Our disciplined treasury approach and proactive liability management resulted to reducing the marginal cost of borrowing at 9.35% for the quarter.

14:39 On the liquidity front, we have maintained INR $16.61 crore of liquidity. In addition to this, we have INR 2,800 crore of undrawn sanction facility available for utilization at any point of time. Further, we have a strong funding pipeline of INR 4,500 crore. Together, these provide us with significant liquidity cushion, hence, our funding flexibility and position us well to meet our obligations. Our capital adequacy ratio stood at 36.75%, comfortably above the regulatory requirement. Our external credit rating remains strong with A minus stable from Crystal, A stable from Care and A minus stable from Iqra, while our PTC program carries ratings of up to AA plus SO.

15:27 Coming to our margins. Our NII for quarter two twenty seven is at $2.65 crore, that is 12.52% compared with 10.85% in quarter two of FY twenty twenty six, representing an improvement of 167 bps year on year. On a sequential basis, it improved by 59 bps from quarter two twenty seven, contributed by improving yields and reduced cost of borrowing. The reduction in the cost of borrowing has come after the lenders have derived confidence after extensive discussions and due diligence. We are confident to sustain these margin levels and further improve upon these. Our pre provisioning operating profit stood at INR 125 crore in quarter two of twenty seven compared with INR 89 crore in quarter two of FY twenty six, an increase of 40%.

16:25 Quarter on quarter, PO increased by 22%, demonstrating the underlying earnings strength of the franchise, reflecting the tangible benefits of the operating efficiencies we have systematically built over the last few quarters. Our credit cost is INR 39 crore as compared to INR 39 crore during the quarter, broadly remaining flat even in a tough quarter. Our total provision stand at INR $20.09 crore, which includes INR 19.5 crore of management overlay. This translates into provision coverage ratio of 93.4% on Stage three assets and 67.3% on Stage two assets. As a result of improving asset quality and better operating efficiencies, present quarter makes a clear turnaround story with profit for the quarters standing at 86 crore compared to loss of INR 22 crore.

17:25 And on a sequential basis, our profit is up by 40% from INR 62 crore last quarter. ROE improved to 4% annualized, while ROE stands at 13% annualized, reflecting normalization of business performance and improving earnings quality. Overall, with the strengthened leadership team, robust capital backing and new portfolio underwritten through stringent guardrails, we begin festive season with a lot of confidence in achieving new scale in the coming quarters. We will continue to pursue growth in a disciplined manner, ensuring that our provisioning and capital buffers remain aligned with the evolving risk environment With improving asset quality, robust capital adequacy, strong liquidity and diversified borrowing profile, we are confident of delivering a sustainable and responsible value creation over the long term.

18:21 Thank you. With that, I would like to open the floor for a Q and A session. Thank you very much. Ladies and gentlemen, we will now begin the question and answer a question may press star and 1 on the touch tone 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. Participants make note to please submit their questions to two per participants and can ask both questions at the same time. First question is from the line of Meet Sangui from PL Capital.

19:13 Hi. Am I audible? Yes, Smit. Hi. Hi. Hi, sir. Congratulations on a strong quarter, sir. Thank you. So I just wanted to understand two things. One, if you can quantify the... Since October is done, if you can quantify the collection efficiency number for the month of October and also the disbursement number for the entire book and also specifically for Maharashtra and Karnataka. Right. So, Meet, the collection efficiency for September was 99.77 gross, and October is 99.78. So October actually at a gross level is little better than September. In terms of disbursements, we were averaging about INR $5.68 crores per month for the previous quarter, there's a growth in October of about 10%.

20:13 So October has grown by 10% across both MFI and MSME separately. On Maharashtra, we have about INR 117 crore book from Maharashtra, where the collection efficiency in October is at about INR 98.84, which is essentially which used to be 99.4%. If you look at the net level, it's about 0.57% net flow, which means at a portfolio level of about INR 117 crore, about INR 57 lakh is moved into net flow forward.

21:00 Got it. And Karnataka? Karnataka is Karnataka is a pristine portfolio. Karnataka, we don't see. Karnataka is 99.95 in October. And Karnataka, the net flow rate is negative. Got it. So that's good to hear. And the second question then is so in terms of second half, given that it will be seasonally strong, do we press the growth button now? Or do we wait for another month to sort of see how things are panning out in some of these drought and flood affected areas? And then maybe just to hit the growth button? No, sir. Absolutely. So I think what we have already done is certain bordering branches of Karnataka and Maharashtra and almost entire of Maharashtra, we have moved to stricter guardrails. We are not doing new customers.

21:51 So there are lot of precautions that we have taken. But as you know that Maharashtra is what about 2% of our portfolio. Karnataka is another about 1.25. So other than that, we are pressing the growth accelerator. And I think the confidence comes from look at five of our large states, UP, BR, MP, Orissa and partially Assam also, they were all they went through two months of floods, excessive rainfall. And other than one month of flow forward, we have been able to come back to actually better collection efficiencies, both in September and October. So and you see the 99.78 October, it includes Maharashtra going down from 99.4 to 98.84.

22:40 So without Maharashtra, actually we would have been 99.83 or 84. So I think you're absolutely right that we have already pressed the growth and we see good demand coming. So I think because of floods, the demand had got postponed and we see demand coming back. Great, sir. Thanks. Thanks for answering the questions. Thank you. Next question is from the line of Ramesh from ICICI Securities. Please go ahead. Yeah. Hi, sir. Before I put my question, I would like to congratulate your team for excellent separate outcome despite so many headwinds in last three to six months. And this also reflects the operation level changes we have done, you know, since when we started, I mean, positive note.

23:32 So, sir, just two things. So one, you know, on the asset quality front. Right? So we can see that, you know, the... At net flow levels, you know, we are sort of one of the best interest earning basis point. But now, you know, there is some noise around this fraud, the name for the, etcetera. And thanks for telling, you know, October collection numbers as well. But when you look at, you know, at ground or from your branches, etcetera, are you seeing any stress building up in any of the industry, state, etcetera? And is there any sign of things worsening because of rainfall deficit or droughts? Okay. Yeah. Yeah. Thanks, Ramesh. So, Ramesh, I'll separate Maharashtra because Maharashtra, you've already said and that's like a... We we have already in the previous question explained that there was a drop Correct. Of collection efficiency in Maharashtra. And I have also explained that what is the cost. So assuming 50 bps deterioration, that's approximately about 50 lakhs, which has gone into the first bucket and this I'm saying in October.

24:42 Now if you look at the rest of the markets, I think one thing that we have learned over last six to seven months, and this is not just pertaining to drought or El Nino expectation. I think we have been while there are new segments, new products we have launched, we have continued to be putting guardrails, which are little stricter than what the laid out otherwise guardrails are. And I think the positive thing that we see right now is that there is no baggage that we are carrying in any of the markets. There is no baggage of October performance, September performance, September spilling onto October, October spilling onto the next month.

25:30 And I think with that and the second thing we have been able to launch two products, which take us into premium JLG. So we continue to do JLG at 3 lakhs and above ticket size up to 6 lakhs. So 3 lakhs to 6 lakhs income. The ticket size, we have not increased too much. So the ticket size continues to be till 1 lakh. And we are seeing good progress in that. So 20% of our MFI disbursement, while it will be nonqualified, however, it is the same ROA accretive, the credit cost is a little better. Just to give you a number in that segment, through the cycle, in the last one and a half years, the power was 0.19% in third cycle and above, which is essentially majority of what we are catering to. So I think we see good positive momentum right now, And we feel that the early calls that we had taken when the West Asia crisis happened, I think this is the time to take advantage of all those checks or balances that we had internally created.

26:38 Okay. I'm sorry to interrupt you, Ramesh. We are unable to hear you, sir. Your voice is breaking. It's better now? Yes, Ramesh. We can hear you now. Hello? So, you're dropping in between, but, yes, we can hear you. Yes. To follow-up on that, sir. So, you know, when we are calling out, you know, this higher ticket MFI loan as a JLG, but I think this is a mutual loan, you know, what industry calls out. Is that right? So the RBI has clearly informed the bureaus that if you do a JLG, as long as you do a JLG, you report it under MFI JLG. So while it will be a non qualified, you're absolutely right, we are following all the guardrails.

27:31 When the bureau also when let's say the other lender also looks at bureau for this customer, they will adhere to the guardrails. This product is with all MFI guardrails, but income greater than 3 lakhs. Got it. And... Got it. Got it. And you said it's 20% of business spend in q two? Absolutely. And the ticket size is 1 lakh. It is not like... It is not a complete swing. It is not like 1.52 tickets. The ticket size continues to be up to 1 lakh. Got it. Got it. And that's why our more than one lakh average ticket sales customer went up to 3% in this quarter. Is that right? Correct. Correct. Greater than 90... Greater than equal to one lakh has gone to three. Correct. Correct. Got it. Got it. This is very helpful, sir. Thank you, Yeah. Thanks, Ramesh.

28:22 Thank you. Next question is from the line of from IFL Capital. Please go ahead. Yeah. Hi. Good evening, and thank you for the opportunity. So I have two questions. One is basically on the growth front. I think over the last two quarters, of course, initially, we were uncertain about, Sanjay, the West Asia kind of war. And then basically, I think this quarter got impacted because of the flood. Now in the current context, there are some potential headwinds. Of course, we are not looking at anything immediately. Currently, apart from couple of geographies and pockets of that. How confident are you basically to scale up the disbursement growth? Because in the last two quarters, we have been kind of stagnant.

29:07 Idea and expectation was that we will be scaling it up quite fast. Now in this potentially adverse macro condition, what is the level at which you intend to go to in terms of say the dispersal growth? And the second point is for Krishna. Basically, last quarter, we had the excess liquidity which kind of pulled down our margins and spreads. Now in this quarter, it seems to have kind of normalized, plus there is some benefit of the rate hike, 55 bps rate hike that we had taken. Right? So how should we think about, say, the margins incrementally? And do we intend to take any rate hikes? Okay. So I think first, Krishan will take the question on margins and spread, and I think you're referring to the cost of borrowing also. Yes.

29:55 Will, during this quarter, there was an uptick of about 24 bps in the yield. That was due to the rate hike we exercised at the beginning of the year. And it was a mix of one was rate hike and another was the reduced delinquency. So there was no reduction in the interest due to NPAs, etcetera. So that was one piece. Second is, there is a reduction of about 35 bps on the cost of borrowing. So now at a steady state going forward, this NIM of 12.52%, we have a scope of another 15 to 20 bps from the yield, which is which will come out of the rate increase we did at the beginning of the year and 15 to 20 bps similar on the cost of borrowing in terms of the spread.

30:51 Now mixing this with the external environment of increasing interest rate scenario, etcetera. I think we definitely see in the next quarter an increase in the margin for about at least 15 to 20 bps. And then after that, I think endeavor to sustain at these levels because on the cost of borrowing, even there is an external environment of increasing interest scenario. As I mentioned in my discussion, we are going to increase gradually our PTC share, which is the least cost borrowing for us at about 8.5%. That will sustain our marginal cost of borrowings and the average cost of borrowing on the books. So we are pretty confident for about next two quarters on maintaining these margins plus even increasing this, that is one piece.

31:45 Post that, we will review the situation. And if required, I mean, we may think of increasing passing on the increased rates, but that is a little away, six to nine months early. We don't see that happening as of now. So that's the situation on the margin. We are pretty confident on sustaining these and even increasing this five years. Yes. And Biral, on the growth, so I think it is important to quantify that it is not that overall in the country, there are macro headwinds. I agree with you that there are macro headwinds pertaining to a particular event. But if you see and I'm not saying that our book in that market is very small, while it is 2%, even then the impact on our collection efficiency is about 98.85%.

32:40 And at a net flow level, we have explained even in October, which is two point five months of drought, it is 0.57. So the net collection efficiency is 99.43 That aside, we don't see headwinds in the rest of the country. And I think three things we have done very patiently. I think we have identified clear customer segments where we want growth to come from. And I think very silently, we have built a strong credit muscle in the MFI thing. So like I said, nine fifty branches now have the ability to actually gauge what's happening on the ground in that particular ladies household or the center meeting. So I think that gives us the confidence that we are not looking at just the BRE or the bureau or the past performance of that customer when we are giving a fresh loan.

33:35 We are also evaluating how her household and the center is doing on the ground. So I think we are fairly confident and you already see October, we had, what, five days of holidays because of the Shera and Puja and multiple things. Despite that, there's a 10% growth in each of MSME and MFI. And I think so this is the point where demand starts to go up over the rest of the half year. So we are confident of the demand, and we are confident that there will be significant growth from here on. So Sanjay, just if I may, typically, of course, the second half remains more heavy on in terms of both growth as well as also the asset quality.

34:24 You expect that trend to now session in this year despite all of this? Absolutely. Like I said, I don't see we have ring fenced. See, there are challenges in certain markets, and those markets we are ring fenced. So in those markets, we have either stopped disbursements or we are going extremely cautious. We have in fact, in certain markets, we have assumed that the income levels have dropped by 20%, 30% and we have reduced foils drastically. So the ticket sizes, everything we have crashed in certain in the ring fenced market. But rest of the markets, look at it this way, we have our ground force credit now, which is evaluating every customer. So we are not just going by the past performance of the customer with us. We are also looking at how her household and how she is doing on the ground. So that gives us ample confidence that there is no reason why growth why the growth will not come in the next four to five remaining months. And we are already seeing that growth in October. I've given you October figures.

35:33 October is already 10% growth over September. Right. Just one last Mr. Viral sir, may be requested to please Thank rejoin the you. Next question is from the line of Ashish Sohnjee from Kotak Securities. Please go ahead. Good evening. Sir, just one question from my side on this Maharashtra situation. When you are speaking to these delinquent borrowers, what is the typical reason for the non repayment from their side? I understand there is a drought, but the is there a impact on their income or are they holding more cash or has their access to credit been affected? How would you characterize it? Okay, great. So I think majority of our customers, Ashish, have the cash flows are not impacted yet, but they are saving for, let's say, in case there will be income impacts going forward.

36:31 So most of our customers, rarely it has come across that the customer has no money or because of the draw, there is some problem that has happened because of which she doesn't she's not in a position to pay. That will be, let's say, less than 0.5%. But let's say, the 1.2% or 1.3% customers which are not paid. Majority of those customers are which are, let's say, a little uncertain about the future. And it's not that their cash flows have dried up or they have got directly impacted because of the drought. I think, plus, there's a lot of uncertainty when there's a drought. And the customer would be, let's say, saving a little extra or seeing how it goes.

37:20 But in most of the cases, we don't see an impact on the cash flows because the dependence on direct agri is very little. Understood, sir. Sir, you mentioned that you have taken a few actions there, including cutting your fire, etcetera. When do you think you'll have the comfort again to loosen these filters again? I think, see, drought is a situation which will not this is not something that will immediately go away like floods. If you look at so right now, internally, we have thought that we will do this at least for one quarter, and we will see how things are on the ground. We have our branches and teams very close to the ground. But at least for 0.25, we would want to keep it at this level.

38:13 Understood, sir. Perfect, sir. Those are all the questions. Thank you. Thank you. Next question is from the line of Prateek from C. R. Kutari, Stockbroker. Please go ahead. Just joined the call a little late. Just wanted to check, our credit costs fell from INR 39 crores and Stage III coverage rose INR 93.4 while we were about INR 70 crores, I think. So what is the FY 'twenty seven credit cost guidance that are we guiding for something at this point in time? And what portion of H1 profit is recurring? I mean, is bad debt recovery inside our other operating income?

39:01 Okay. So I will so Christian, you want to explain the change in that provisioning? Yes. Then I'll explain the guidance on credit cost. So the credit cost annualized credit cost remains flat sort of flat. This is just a reduction of change of about one CR. And net of the recovery, it is 0.3% for the quarter and 1.2% annualized net of the recoveries. So these recoveries are sort of normalized, and we expect these recoveries to continue. So that takes us to the next question also. This INR 86.47 crore is a recurring one. In this, there is no extraordinary or exceptional item in this.

39:56 I think his other question is this INR 81.5 to INR 93 point So on the Stage three, the PCR has increased from INR 81% to INR 93%. That is because we have sold a secured portfolio to NERC of about INR 54 crores. So after that is out, this TCR has increased from 88% to 93% in the straight street. Okay. And on the guidance on credit cost for the rest of the year, we are clearly saying that our flows are roughly what, sub around sub-twenty bps. So let's say about 15 to 16 bps.

40:42 And assuming this at an annualized level is about 1.8% of credit cost. What we have also given guidance is that every time there's a shock, let's assume a 30 bps per quarter impact. So you add 60 bps to that, so about 2.5% credit cost. So the range is between 2% to 2.5 guidance on the credit cost for the year. But like you already see, despite the shock, we are at sub-two percent. But from a guidance perspective, the range is 2% to 2.5%. Thank you very much. All the best. Yes, thanks. Next question is from the line of Rajiv Mehta from BS Securities. Congratulations on pretty strong numbers.

41:32 So I just want to check, firstly, on Maharashtra collection efficiency impact, the drop we have seen. Any idea that how much it would have dropped for the competition? Are we better off in terms of seeing a little drop versus competition since you've been very cautious in the last six months in terms of customer identification, the whole underwriting you spoke about? Is that relatively less than competition in Maharashtra impacted districts? And secondly, in terms of Karnataka, do you expect any impact to come in November with some lag? Or you believe that if any impact had to come, it should have come in October? Absolutely. So I think I'll take the easy one, which is Karnataka. So we've been so there are certain markets in Karnataka or branches, which are prone to drought.

42:22 So those we have been cautious. And like I said, Karnataka collection efficiency has actually improved in October. We are close to 99.95%. And so it's been like that for the last now two quarters, two to three quarters. So Karnataka, we see any concern, but we have still put other potential broad impact on a different guardrail. On your first question, which is Maharashtra, obviously, that's a very tough question, I can't say for competition. But I think if you look at how what we have been talking about guardrails or what we have been and this is right from the last week of February when the West Asia crisis happened, obviously, we did not know that there would be these kind of situations.

43:19 But we've been saying that it is not that there is no demand or there is no growth. But from a guardrail perspective, we will always keep an industry minus one. So our guardrails will always be a little plus one over the industry. And so I think we obviously feel that we are very confident that we will be able to I'm not comparing against competition. We are very confident that there will not be too much of impact because of this, but obviously we will have to wait and watch because we have done far stronger customer selection than what we were doing, let's say, much before about one or two years back. So I think I would stick to that rather than comparing directly with competition.

44:12 And just one thing on growth and disbursement scale up. See, this premium deal, I don't know when did you launch, but I think you're saying that it's already 20% of disbursement. Then individual loan product is also being launched. I think it's already launched, so that will also add to some disbursement volume. And I... And as I see that you also raised ticket size in MSME to up to 50 lakhs from earlier 25 lakhs. So I think all this incrementally have to contribute to much larger disbursement run rate, you know, going forward. Hence, what will be the, you know, exact EUM number, which we can kind of reach by the end of March? And then the related question is on the exit ROA. I mean you've already done 4% in this quarter, and our CFO said that there is nothing one off in this. So then can the exit ROA be slightly even better?

45:02 Would you want to raise that guidance for the exit ROE? Okay. So I think on the number, I'm I don't want to take I don't want to give another number because we have already given a number and we have also shared that because of the floods or excess rainfall that happened in Q2, there was an impact on those numbers. But I think if I put I'm just putting three things in perspective. One, we are not getting any baggage from September or quarter two and including October. So we are getting into November absolutely fresh with a super and a very good collection efficiency, no baggage on collections, no prior incidents or concerns. So I think that makes us very, very confident.

45:54 The second thing is that the two new products we have launched. So we are already so the individual loan, you will see now scale up happening, but the JLG MFI, which is a non qualified loan up to 1 lakh, that we will continue to grow and we see very good demand in the market, especially our customers and competition customers or customers out in the market who have a previous track record. The third is the MSME growth, which will come from the increased ticket size. So MSME has already grown about 20% in the between quarter two to quarter one and grown by about 10% this quarter over the previous quarter. So I think with this, you will see a very strong growth obviously coming in MSME and they will start having substantial contribution to the numbers now.

46:50 But I'm refraining from giving a year end number, but I can tell you that we are in a strong position for growth. Next question is from the line of Pravesh Gupta from Maximum Capital. That is 2%. I'm sorry to interrupt you, mister Gupta, but your voice is sounding very muffled. Can you please check? In case if you are connected on any Bluetooth, can you please come on your handset? Yeah. Yeah. Yeah. So on Maharashtra, you said 117 crore or is 170 crore of the I'm sorry to interrupt, mister Gupta, again.

47:45 Ramesh, 117 crore. Yes. Okay. So that is 0.5 growth rate. Correct. So that is at a 98.84% collection efficiency in October and net flow rate of 0.57% in the current bucket. And this is the entire Maharashtra book, right? Not the book. This is the entire Maharashtra book. Okay. Okay. So the draught affected Maharashtra is smaller. That boss is also close to about 26 to 27 crores. Okay. So all this reduction in the net flow of 0.5% is coming because of INR 26 crore book rather than the INR 117 crore book? Yes, most of this is coming from see, like I said, it's not that all of drought is in fact, 60% of drought has not started giving impact yet.

49:00 And we see it wherever the drought impact is also there on the collection efficiency, like I explained in the previous question, it is not because the customer's cash flow is impacted. It is because the customer want is she's not sure about her future earnings, and she's just playing a little safe. The 0.57% or 55%, the net flow forward is on the overall Maharashtra book. Okay. But since you are saying that INR 26 crore is the main affected one, so in that sort of a geography, maybe you are coming down to 96% or thereabout and remaining Yes, might be obviously. We will be there we are at about INR97.25 crores.

49:47 That's about INR26 crores of pause. Okay. And the remaining book, which is 90 odd crore, is that at 99.8 just like the overall company? So I have not done that math separately. But... Yeah. So I have given you the two books. You can do the math. I I have given you... You can put vertices, and I have not done that separately. Okay. Okay. Okay. And secondly, sir, on the DTA side, so how much DTA are we carrying now, which is... Which can be consumed in future? Yeah. Krishna will So as on September 30, we are carrying $2.71 crore of DTA, which is unrecognized.

50:37 $2.71. Okay. And and on the Karnataka side, you know, normally, you know, we have seen some commentaries by companies about growth, etcetera. But in your case, you are saying that, you know, it has actually gone up in terms of ex market. So I mean, any particular reason why our book might be behaving a little bit better than the commentaries otherwise? I think Karnataka as a rule, we had put we will do only two lenders. We had so they were so when the Karnataka crisis had happened, post that, we had not opened Fusion Plus two across all the branches. So there were multiple riders that we had put and even where we did Fusion plus two, there we put with multiple other caveats.

51:28 So we've been overall since the Karnataka episode, we've been very cautious on Karnataka. And we did this homework, I think, about seven, eight months back that which are the markets which are rain fed and what is the which markets could get impacted. So we had identified part of after this issue happened, the rain fed part of Karnataka, we had identified with separate guardrails. I think maybe that's why the collection efficiency continues to be strong. And October also, like I said, I shared with you the October numbers also. October also Karnataka continues to be very strong. Mister Gupta, I'm sorry to interrupt. We are unable to hear you, sir. Can you come in a good reception area? Yeah.

52:21 Yeah. I was asking that two states thing in any other geography. No, we don't see. We have been watching. So we see we saw reservoir levels dropping in Andhra and Telangana, but we don't see any impact on production efficiencies there or any disturbance or any impact on the ground. Okay. And secondly, sir, on the name side, so there are larger players which have spoken about reducing the and then the sort of yields. So on the competitive side, how is that going to play out? Because, you know, the difference between the various players is also getting higher now.

53:11 So are you see... I mean, how do you see that situation panning out? Because the the... Some of the bigger guys also have very, you know, I mean, good sort of source of funding, etcetera, and now they are earning excess sort So we have lost you, Pravesh, but I'm assuming your question is that do we see any stress on the cost of borrowing going up because of because you're seeing everybody else's cost of borrowing going up and people are talking about that, even the large players. I think clearly, you have to appreciate that we are coming out of a we are personally coming out of a high interest rate cycle. You look at the incremental cost of borrowing and you look at the trajectory now the market, the external rates have not changed so much.

54:07 So I think it was because of our past performance where our cost of borrowing was high and not to do with the market. So the increment that you see is because our performance continues to improve from a profitability perspective. And like Krishan already explained, we think there's an opportunity to further reduce the cost the incremental cost of borrowings from the levels right now. And assuming that, let's say, there's a 50 to 75 basis points increase in the next two quarters, impact of that will be very muted for us. Plus the other thing that Krishnan already spoke about is that the rate that the pricing because of the PTC coming in. You see PTC as a percentage has significantly gone up to close to about 9%, and Krishan already explained that this will further go up. So we have plenty of leverages available to reduce the cost of funds.

55:16 The second thing is that there is another the yield increase that we did, only 25 to 30 bps of that effect is coming in the portfolio. In the next two quarters, you will see another 12 to 15 bps coming per quarter. We see names to be continuously increasing from here on. And I think next quarter, we will give you a more clearer idea on the future names, how they will be. But at least right now, we see that increasing. Okay, sir. Thank you and all the best. Thank you. Next question is from the line of Varun Gajaria from Boring Asset Management. Please go ahead. Thanks. Congratulations on a good set.

56:02 So I just wanted to just wanted to understand, in case I missed it, we are we are on track for our priority priority priority guidance. Like, and do these macros at this point or are we good to go? Sorry. Did you say what... Which guidance, Varun? Is it AUM guidance? Yes, for the growth guidance and our cost guidance, what I mean. Correct, correct. Absolutely. So I think there are three clear guidances that we had given for this year end. I'll just reiterate, we had said that INR 10,000 crore of AUM. Two, we had said that the credit cost will be in the range of about 2% to 2.5%.

56:50 And third, we had said that we were at 33.1% in quarter one. We had said we'll be close to we'll be at 4% by the last quarter. Now we are very confident. You've already seen 4% ROA hitting right now. So we see continuous growth happening in ROA. We see you see good performance on credit cost. We will continue to hold that. I have shared with you the October numbers already. I think on AUM growth, because of Q2, because of the five states that we spoke about, the demand has got a little delayed. And hence, there that INR 10,000 crores, we may have to moderate a little and that AUM could come a little later. But like I said in the previous question, I don't want to give another number because there are too many moving parts right now. However, I have shared with you the October numbers. We are already seeing a 10% growth, and we are confident that the growth will continue.

57:54 However, your specific question of INR 10,000 crore of AUM, we don't I'm not giving another number. And I think we will wait and watch, but obviously, some of that will get moderated because of what happened in Q2. But I think the good thing is that there is no moderation in the credit cost reduction or the ROA target that we had taken. Right. To an overall, our borrowers seem to be down by 25% while we have outstanding per borrower is probably up by 52% at 37.7. So when do you think the the borrower count stops? Is it is it conscious credit management policy to onboard onboard safer borrowers?

58:47 How does it work? I think so there are you already you if you look at in our book, there are approximately and most of it is old book, there are about 4% customers who are more than three lenders. So we cannot fund to these customers. They will have to attrite and move out. Similarly, there are also customers who are moving out because they are over leveraged because of other reasons, let's say, not just the lenders. I'll give you a sense of how we are measuring this. Of the customers which are eligible for a second loan in the between the twenty four to twenty seven months, that's when 50%, 60% of customers come for a retention or a repeat loan.

59:35 We were retaining about 30% of the customers. Actually, exact number was 29%. There are some changes that we have done and there is additional focus that we have put from August onwards on how we are tracking, what offering we are giving to those customers, even our KPIs internally at a branch level. So this retention has now moved from 28% to 38%, actually close to between 38% to 39%. So I think our focus is that customers who are eligible, who are ready for a repeat loan, a significant percentage of that we should be able to retain with us. The immediate target for the next few quarters is we want to be at about 50% of the customers we want to retain.

1:00:26 Okay. Thank you so much and all the best. Thanks. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Sanjay Garyali for closing comments. Yes. Thank you, everybody, for being with us and wishing you and your families a festive season ahead. Thank you so much. Thank you very much. Ladies and gentlemen, on behalf of Fusion Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.