Detailed Narrative
Q3 & 9M FY25 Business Performance & Portfolio Quality
Fusion Finance's AUM moderated to INR10,599 crores as of December '24, reflecting tightened underwriting norms. Despite this, the company observed early green shoots with net collection efficiency for the current portfolio improving to 97.7% in December '24 from 96.1% in Q2 FY'25. Customer composition showed meaningful deleveraging, with 80% of clients now falling under the 'Fusion plus less than or equal to 2 lenders' bucket, up from 79.3% in December '24 and 68.4% in March '24. The MSME vertical, with 85% secured loans, is growing well and is considered a key pillar for future growth.
Capital & Liquidity Position
The company maintained a healthy Capital Adequacy Ratio of 22.2% as of December 31, 2024. This is expected to rise to around 25% after the first tranche of the planned INR800 crores rights issue, and over 30% pro forma for the full amount. Liquidity position was strong, with INR1,151 crores as of December 31, 2024, and INR1,223 crores in sanctions in hand. An additional INR400 crores of liability was raised in Q4 FY25, bringing total liquidity to INR1,400 crores as of February 12, 2025.
Asset Quality & Provisioning
Fusion Finance demonstrated significant improvement in asset quality, with NNPA reducing to 1.7% in December '24 from 2.4% in the previous quarter, despite a Gross NPA of 12.58%. Provision coverage was substantially enhanced across all stages: Stage 3 coverage increased to 88% (from 76% in Sep '24), Stage 2 to 72% (from 60%), and Stage 1 to 2.68% (from 1.84%). The company prudently reversed all deferred tax assets and did not recognize interest on Stage 3 loans, resulting in approximately INR95-98 crores of interest reversal and non-recognition, and made ECL provisions of INR572 crores in Q3 and INR1,615 crores in 9M FY25.
Operational Initiatives & Technology Adoption
The company implemented stringent credit criteria, even tighter than MFIN guardrails, leading to a superior-quality portfolio since August '24. Operational changes included reducing the field officer load from 550 to 400 customers, providing telecalling support, and revising incentive structures to improve collections and retention. Technology investments continued with the in-house LOS and LMS platform FinDost for MSME, and plans for a hybrid model for microfinance in the coming financial year, leveraging risk and data analytics for better customer engagement.
Regulatory Environment & Industry Outlook
Management expects minimal impact from new MFIN guardrails effective April 1, 2025, due to proactive deleveraging. While acknowledging a new Karnataka ordinance, they noted it excludes RBI-regulated NBFCs but will monitor for any collateral impact. The overall industry is undergoing consolidation, and Fusion Finance believes that strong guardrails will lead to a healthier, more disciplined sector in the long run, with stabilization anticipated from Q1 2026.
Covenant Breaches & Lender Support
Fusion Finance reported covenant breaches amounting to INR5,288 crores as of December '24. However, they successfully obtained waivers from the majority of lenders, covering INR4,145 crores, and are in discussions with the remaining five lenders for INR939 crores. Management emphasized that lenders continue to have complete faith in Fusion's business and governance fundamentals, and no acceleration notices for repayment have been issued.