Fusion Finance Limited — Q2 FY26 earnings call

Call held 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

  • 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

  • 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.

Key financials

3 periods

Headline

  • GNPA
    4.6%
    QoQ -16.2%
  • NNPA
    0.38%
  • Collection Efficiency
    98.5%
  • NIM
    10.9%
  • Capital Adequacy Ratio
    31.3%
  • MSME AUM
    ₹708 Cr
    QoQ +3.5%
  • Cost-to-Income Ratio
    70.2%
  • Pre-provision Operating Profit
    ₹89 Cr

Q2

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

H1

  • Disbursements
    ₹2,248 Cr

What they filed

Q1 FY27: revenue up 3.6%, net profit up 167.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue692 474 466 442 401 −42%416 −12%424 −9%458 +4%
Net profit-305 -719 -165 -92 -22 +93%14 +102%114 +169%62 +167%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Debt Debt disclosed Cost 10.3%
    • New borrowing Raised fresh funds through DAS, PTC, and ECB ₹1,813 Cr
    • New borrowing Approved calling the second tranche of rights issue ₹400 Cr
    Our average cost of funds remained stable at 10.35% in line with previous quarters, while marginal cost of funds declined to 12.9%.
  • Liquidity Undrawn ₹2,730 Cr Comfortably placed with liquidity of INR 892 crores and sanctions in hand of around INR 2,730 crores.
    We remain comfortably placed with liquidity of INR 892 crores and a capital adequacy ratio of 31.31%, well above the regulatory requirement. ... We have currently, we are having a sanction in hand of around INR2,730 crores, which includes DA, PTC, term loans.

Guidance & targets

Volume

  • Disbursements matching repayments Volume · Q3 end or beginning of Q4 (December-January) · Medium confidence Match repayments
    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. So somewhere, I think, between December and Jan is the, if, let's say, you're asking for an exact month, I think between December and Jan is what we will we should encounter that.

    — Sanjay Garyali

Customer Acquisition

  • New to Fusion/Credit customers percentage Customer Acquisition · Next 1-1.5 quarters, tempering thereafter · Medium confidence 35-40%

    From 25% today

    for the next 1 - 1.5 quarters, you may see this percentage continue to be at about 75%. But the way we are making changes in quarter 4 onwards, you will see this tempering. Eventually, a go-to number, we think should be somewhere between 60% to 65% from Fusion customers. And the balance, 35% should be new to Fusion and within that, new to credit.

    — Sanjay Garyali

Credit Cost

  • Ongoing future credit costs Credit Cost · Ongoing · Medium confidence 3-3.5%
    However, the way we are building our portfolios in our modelling, the credit cost that we are building is sub 2.5%. So the guardrails we are building sub 2.5%, but I think from a more realistic, we should consider ongoing future credit costs at about 3.5%.

    — Sanjay Garyali

AUM

  • AUM trend AUM · One more quarter · High confidence Continue to trend lower
    AUM expense in the coming quarters. Despite a moderated portfolio size following the recalibration undertaken over recent quarters... AUM will continue to trend lower.

    — Sanjay Garyali

Operating Expenses

  • Salaries reduction impact Operating Expenses · Q3 onwards (October onwards) · High confidence Reduction will kick in
    the salaries and everything will kick in -- the reduction will kick in from quarter 3 onwards, which is October onwards.

    — Sanjay Garyali

Cost of Funds

  • Marginal cost of borrowing Cost of Funds · Next quarter · Medium confidence Down 20-30 bps
    But for marginal cost of borrowing next quarter, it will little bit get down maybe 20, 30 bps down.

    — Amandeep Singh

Headcount

  • People headcount growth Headcount · Next year · High confidence Hardly go up from current level
    Which will lead to what, 30% growth next year, we don't envisage adding too many people. Actually, the people head count will hardly go up from the current level.

    — Sanjay Garyali

What to watch in Q3 FY26

Disbursement growth vs. repayment numbers

Q3 end or beginning of Q4 (December-January)
Current Q2 disbursements at INR 1,298 crores, quarterly repayments close to INR 2,000 crores.
Target Disbursements 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

  • Industry Pressure on NIMs and Borrowing Costs

    medium

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

    Both acknowledged

  • Challenging Global Environment

    low

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

    Management acknowledged

  • Leadership Transition

    low

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

    Management acknowledged

  • Covenant Breaches

    low

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

    Both acknowledged

Q&A highlights

5 direct
P&L charge reconciliation (incremental PAR provision vs write-off) Partial
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

Market exits and branch closures Direct
So Renish, most of -- there is no specific state that these branches lie in and they are most of these branches are distributed between the top 3 states, which is UP, Bihar, Odisha and some of it in MP. ... We have also shut down some MSME branches and merged with our ROs to reduce our overall opex.

Provides insight into the company's strategy for optimizing its branch network and reducing operational expenditure.

Asked by Renish from ICICI

Higher repayment rates and loan tenure Direct
So essentially, what happens, Renish, is that when you focus on an existing set of customers, so there are customers moving out and adding. The process that we follow is that existing customers, the moment is ready for our second cycle, which is after 14 months, which means that about 60% of the loan should have retired for the customer to be eligible for a second cycle which means that essentially if I lend to my existing customers, my overall tenor will reduce because there are loans which will close and there are new loans which will get created.

Explains the dynamics behind the observed higher repayment rates, linking it to the strategy of focusing on existing customers for second cycle loans.

Asked by Renish from ICICI

UP flow rates and collection efficiency concerns Partial
Now if you see the new book which is now 63% to 65% of the overall value, that collection efficiency is at about 99.47. And the old book has about 98. So from a value perspective, which what I said and explained in my notes, our collection efficiency is 98.89 for this quarter. ... UP continues to be above the country benchmark, which is by about 15 basis points.

Addresses analyst concerns about regional asset quality, clarifying that overall and new book collection efficiencies are strong, and UP's performance remains robust.

Asked by Rajiv Mehta from YES Securities

Release of management overlay Direct
So when we and this was in Q1 as well that when we looked at our ECL model and the management overlays, you understand both of them go hand in hand. What we realized was that so there is an over provisioning that we have done or, let's say, we have taken a much higher provisioning because of what happened in the previous year. ... We will continue to do that. And we have not used all of it, so we have explained there that overall INR60 crores of management overlay. So we have utilized INR15 crores.

Clarifies the rationale behind releasing the management overlay, attributing it to improved performance and prior over-provisioning, and indicates a phased release of the remaining amount.

Asked by Rajiv Mehta from YES Securities

Industry-wide new loan rate hikes and Fusion Finance's strategy Partial
Yes. So absolutely. So I think the key thing is that if you look at the industry, there is a pressure on NIMs. ... So we are cognizant of this fact. There is an internal discussion that we are having. We have made a presentation to our internal audit committee and Board. And I think post discussions with that, we will come back to the market in terms of what our strategy will be on rates or yields to new customers.

Highlights the industry trend of increasing loan rates due to stress and indicates that Fusion Finance is actively evaluating its own pricing strategy, which will impact future NIMs.

Asked by Kushagra Goel from CLSA

Credit costs trending in H2 FY26 and next year Direct
So clearly, the credit cost will significantly continue to come down. ... However, the way we are building our portfolios in our modelling, the credit cost that we are building is sub 2.5%. So the guardrails we are building sub 2.5%, but I think from a more realistic, we should consider ongoing future credit costs at about 3.5%.

Provides management's outlook on credit costs, differentiating between internal guardrails and a more realistic ongoing cost, which is crucial for future profitability projections.

Asked by Abhijit Tibrewal from Motilal Oswal Financial Services Limited

Long-term employee cost and productivity Direct
So there are 2 things. One, if you see the disbursement growth has come on the drop of 2,000 people lesser, which means that our productivities have significantly gone up. ... So right now, we have gone live with our digital receipting, which means that no physical receipting in the market. So we feel that these 2 will reduce the burden on the front end and productivities will continue to improve without adding people and without any increase in opex.

Explains how manpower reduction and digital initiatives are driving productivity gains and are expected to keep operating expenses in check despite anticipated growth.

Asked by Pranav Gupta from Aionios Alpha Investment Managers

2 min read 7 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

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.

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