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    Fusion Finance Limited

    FUSION
    Financial Services·6 Nov 2025
    Management Summary

    Fusion Finance reported a robust Q2 FY26, characterized by strong sequential growth in disbursements and significant improvements in asset quality, with GNPA and credit costs declining. The company maintained a healthy capital adequacy and liquidity position, supported by fresh fund raises and a refined operating model. While facing a slight increase in cost-to-income ratio due to AUM reduction, management is focused on calibrated growth, operational efficiencies, and expects AUM to stabilize and grow post the next quarter.

    Highlights

    5

    • Disbursements grew 37% sequentially to INR 1,298 crores in Q2 FY26, with H1 FY26 total disbursements at INR 2,248 crores.

    • GNPA improved to 4.6% from 5.5% in Q1, and NNPA remained low at 0.38%.

    • Collection efficiency reached 98.5%, with the new book at 99.5% collection efficiency.

    • Credit costs declined significantly to INR 111 crores in Q2 from INR 178 crores in Q1.

    • Capital Adequacy Ratio (CAR) stood strong at 31.31%, well above regulatory requirements.

    Concerns

    3

    • Cost-to-income ratio increased slightly to 70.2% due to a reduction in AUM.

    • AUM is expected to continue trending lower for one more quarter.

    • Industry-wide pressure on Net Interest Margins (NIMs) and borrowing costs, though Fusion Finance is evaluating its strategy.

    What Changed2

    vs Q3 FY26

    Guidance items11 → 7 (-4)Risks discussed3 → 4 (+1)
    Key financials

    Metrics

    11

    Periods

    3

    Headline

    8
    • GNPA
      4.6%
      QoQ-16.2%
    • NNPA
      38%
    • Collection Efficiency
      98.5%
    • NIM
      10.9%
    • Capital Adequacy Ratio
      31.3%

    Q2

    2
    • Disbursements
      ₹1,298 Cr
      QoQ+37%
    • Credit Cost
      ₹111 Cr
      QoQ-37.6%

    H1

    1
    • Disbursements
      ₹2,248 Cr

    Capital allocation

    2
    high confidence
    CategoryHeadline
    Debt

    Debt disclosed

    Cost 10.3%

    Liquidity

    Undrawn ₹2,730 crores

    Comfortably placed with liquidity of INR 892 crores and sanctions in hand of around INR 2,730 crores.

    Guidance & targets

    7
    CategoryTargetPriority
    Volume
    Disbursements matching repayments
    Match repayments
    		Medium
    Customer Acquisition
    New to Fusion/Credit customers percentage
    35-40%
    		Medium
    Credit Cost
    Ongoing future credit costs
    3-3.5%
    		Medium
    AUM
    AUM trend
    Continue to trend lower
    		High
    Operating Expenses
    Salaries reduction impact
    Reduction will kick in
    		High
    Cost of Funds
    Marginal cost of borrowing
    Down 20-30 bps
    		Medium
    Headcount
    People headcount growth
    Hardly go up from current level
    		High

    What to watch in Q3 FY26

    5

    Disbursement growth vs. repayment numbers

    Q3 end or beginning of Q4 (December-January)
    CurrentQ2 disbursements at INR 1,298 crores, quarterly repayments close to INR 2,000 crores.
    TargetDisbursements to match or exceed repayments.

    Why it matters

    This indicates the company's ability to return to overall loan book growth after a period of recalibration.

    I think somewhere in Q3 end or beginning of Q4 is where we think that the disbursements will take over the book degrowth or what you are mentioning as repayments.

    Risks & concerns

    4
    RiskSeverity

    Challenging Global Environment

    The global environment remains challenging, though domestic optimism provides some relief. — Management acknowledged

    low

    Leadership Transition

    Smooth and seamless handover of leadership was ensured, with strong foundations laid for the next chapter. — Management acknowledged

    low

    Industry Pressure on NIMs and Borrowing Costs

    There is industry-wide pressure on NIMs, and the company is evaluating its strategy on rates and yields for new customers. — Both acknowledged

    medium

    Covenant Breaches

    The company has experienced covenant breaches in past quarters but has consistently received waivers from lenders due to strong relationships. — Both acknowledged

    low

    Q&A highlights

    8

    “Actually, P&L charge, whatever provision we have made, INR15 crores of management overlay what we have released, that charge you have to add back if you want to calculate with the respective flow rates. So -- and with reference to ECL calculation methodology, the same factors what we have applied in the earlier quarter, that's the same we have followed. ... Total incremental provision, including that write-off is around INR126 crores, including management overlay.”

    Clarifies the components of the P&L charge and how it relates to provisions and write-offs, which was causing confusion for the analyst.

    asked by Renish from ICICI

    2 min read7 chapters

    Detailed Narrative

    01

    Q2 FY26 Performance Highlights and Strategic Focus

    Fusion Finance reported a strong Q2 FY26, with disbursements growing 37% sequentially to INR 1,298 crores, contributing to a total of INR 2,248 crores for H1 FY26. The company acquired approximately 75,000 customers in Q2, with 75% being existing clients, reflecting deep franchise trust. Management's focus remains on calibrated growth, sharper execution, stronger credit discipline, and deeper customer focus, building on a smooth leadership transition.

    02

    Significant Improvement in Asset Quality

    Asset quality saw substantial improvement, with GNPA declining to 4.6% from 5.5% in Q1, and NNPA remaining low at 0.38%. Credit costs reduced sharply to INR 111 crores in Q2 from INR 178 crores in Q1, marking the fourth consecutive quarterly decline. Collection efficiency stood at 98.5%, with the new book achieving an even higher 99.5% efficiency, validating the effectiveness of the refined operating model.

    03

    Operational Efficiency and Digital Transformation

    The company achieved significant productivity gains by reducing overall manpower from 15,400 to 13,600. Digital initiatives, including paperless customer onboarding and digital receipting, have reduced processing time and manual errors, allowing front-end teams to focus more on growth. Approval rates improved to 27% in Q2 from 24% in Q1, indicating stronger credit filters and field productivity.

    04

    Growth of MSME Vertical

    The MSME vertical continues to scale as Fusion's second growth engine, with its portfolio reaching INR 708 crores, up from INR 684 crores in Q1. This segment is characterized by 91% secured loans, an average LTV of 42%, and an IRR of 23%. Operating across 8 states and 91 branches, the business maintains a 56% approval rate and 78% booking rate, growing meaningfully without proportionate opex increase.

    05

    Robust Capital and Liquidity Position

    Fusion Finance maintains a strong capital and liquidity position, with a Capital Adequacy Ratio of 31.31% and liquidity of INR 892 crores. The company raised INR 1,813 crores in fresh funds during H1 FY26 and secured approval for a second tranche of INR 400 crores from its ongoing rights issue, ensuring ample capital headroom for future microfinance and MSME expansion.

    06

    NIM Expansion Amidst Stable Cost of Funds

    The average cost of funds remained stable at 10.35%, while the marginal cost of funds declined to 12.9%. Despite industry pressures🌐, the Net Interest Margin (NIM) expanded to 10.9%, driven by a richer yield mix, improved asset quality, and lower non-recognition of interest income on Stage 3 assets. Management expects the marginal cost of borrowing to decrease by 20-30 bps next quarter.

    07

    Future Growth Strategy and Outlook

    The company anticipates disbursements to match repayments by Q3 end or early Q4, signaling a return to overall book growth. It plans to increase the share of new-to-Fusion and new-to-credit customers to 35-40% from the current 25%, while maintaining strong credit guardrails. Management is confident in delivering sustainable and profitable growth, supported by prudent governance, robust systems, and a customer-centric culture.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.