Detailed Narrative
Q1 FY26 Performance Overview
Fusion Finance reported a strong start to FY26, with performance reflecting early impacts of strategic actions taken last year. Credit costs moderated, collections remained robust, and the operating model showed greater consistency. The company is positioned to build momentum through the year and drive long-term value creation, despite FY25 being a challenging year for the industry marked by a prolonged credit cycle and operational headwinds.
Credit Quality and Asset Management
Credit costs declined significantly to ₹178 Cr in Q1 FY26 from ₹253 Cr in Q4 FY25 and ₹571 Cr two quarters prior. GNPA improved to 5.43% from 7.92% last quarter, and NNPA stood at 0.19%. Stage 3 provision coverage remained robust at 97%, with overall ECL provisions at ₹579 Cr, down from ₹887 Cr. The company revised its write-off policy from 240+ DPD to 180+ DPD, resulting in ₹486 Cr in write-offs this quarter to ensure early portfolio hygiene.
Disbursement and Growth Strategy
Q1 FY26 disbursements reached ₹950 Cr, showing encouraging growth momentum. The company's strategy remains disciplined, with 79% of disbursements coming from Fusion and Fusion+1 clients, and 76% to existing customers. New products Ujala and Sugam contributed 40% of July disbursements. Approval rates improved to around 20% in July from 12%-15% earlier, driven by maturing credit intelligence. The new book originated post-September 2024 now constitutes 44% of the portfolio and maintains a July current bucket demand efficiency above 99.5%.
Funding and Liquidity
Fusion Finance raised ₹1,220 Cr in fresh funds between January and July 2025. As of June 30, 2025, the company held ₹724 Cr in liquidity, with ₹1,496 Cr in sanctioned loans and ₹400 Cr from the right issue. Capital adequacy remains strong at 29.52%. The average cost of funds declined 25 bps QoQ to 10.27%, while the marginal cost rose 160 bps to 13.3% due to the timing of new borrowings, which had an average tenure of 18 months. NIM improved by 172 bps QoQ to 10.29%.
Operating Efficiency and Cost Management
The cost to income ratio was 70.81% in Q1 FY26, marginally higher than Q4 FY25 (69.61%) due to portfolio contraction. Operating expenses stood at 10.1% for the quarter, with MFI at 9.86% and MSME at 0.22%. Management indicated that OPEX will continue to trend downwards in subsequent quarters, driven by efficiency enhancements and optimization efforts, including in the MSME segment, which saw costs significantly come down in absolute terms over the last 3 months.
MSME Vertical Outlook
The MSME vertical is emerging as a second growth engine with an AUM of ₹684 Cr, 91% secured, and an average LTV of 42% and IRR of 23%. Operating across 8 states with 105 branches, the business maintains a 50% approval rate. Management expects significant growth in this segment, with plans to expand to 150-155 branches in the next two years, leveraging its distribution and credit assessment capabilities. The company noted that MSME costs have significantly come down in absolute terms over the last 3 months.
Leadership Transition and Strategic Focus
The company is undergoing a smooth leadership transition, with the new CEO, Sanjay Garyali, expressing gratitude and confidence in the team. The strategic focus is on strengthening the foundation, transitioning to a growth phase with caution, and leveraging a strong vintage in key MSME markets. The company is also investing in technology and process improvements to enhance operational efficiency, customer service, and grievance redressal, with key transformative projects on track for delivery by March 2026.