Fusion Finance

FY26 was a pivotal year for Fusion Finance, marked by significant learning, testing, and institutional building, with a strong focus on portfolio quality and credit guardrails. Q4 FY26 disbursements reached INR 2,140 crores, a substantial increase from INR 1,594 crores in Q3. The company's Assets Under Management (AUM) grew from INR 6,800 crores to INR 7,400 crores during the quarter, with average AUM increasing by INR 200 crores sequentially, expected to positively impact NII and PPOP from Q1 FY27.

Fusion Finance materially strengthened its credit guardrails, investing in collections, infrastructure, and technology, and sharpening customer selection. Forward flow rates in the current bucket remained sub 0.1% net. Gross NPA declined significantly to 3.21% in Q4 from 4.38% in Q3, and Net NPA improved to 0.51% from 0.63%. Collection efficiencies remained robust across core operating states, with MFI at 99.7% and MSME at 99.3%, supported by over 5 million AI-led customer interactions.

The company implemented a granular branch-level operating framework, with nearly 90% of disbursements now originating from category A and B branches. Investments in technology include AI-led customer interactions for collections and onboarding, and a migration to a more advanced Loan Management System (LMS). The LMS UAT process has commenced, with full migration expected by August 2026, aiming to materially improve branch productivity, onboarding quality, and customer service.

Fusion Finance reported a Profit After Tax (PAT) of INR 114.19 crores for Q4 FY26, including a deferred tax asset (DTA) recognition of INR 76.8 crores. Excluding the DTA impact, the annualized ROA for Q4 FY26 stood at 2.08%. Net Interest Income (NII) for Q4 was INR 222 crores, a 6% sequential decline from INR 237 crores in Q3, primarily due to INR 7-8 crores higher finance costs from additional liquidity. Pre-Provisioning Operating Profits (PPOP) remained broadly flat at INR 93 crores, with quarterly credit costs reducing significantly to INR 56 crores from INR 80 crores in the previous quarter.

Liquidity stood at INR 1,913 crores as of March 31, 2026, an increase of INR 500 crores, strategically maintained due to geopolitical uncertainties. The company also holds INR 1,245 crores in drawable sanctions and has a strong pipeline of about INR 2,500 crores. Capital adequacy remained robust at 36.46%, comfortably above regulatory requirements. The average cost of borrowing for Q4 was 10.30%, with the marginal cost moderating to 10.8% XIRR, and is expected to improve further.

Fusion Finance is strengthening its positioning in the MSME loan against property segment, specifically targeting INR 8 lakh to INR 15 lakh ticket sizes. The strategy focuses on income assessment in Tier 3 and Tier 4 towns, prioritizing less leveraged and new-to-credit borrowers, with 35-40% of new volume expected from new clients. The company is also experimenting with different collateral types while maintaining its FOIR (Fixed Obligation to Income Ratio) discipline.

The company is undergoing a strategic branch consolidation, aiming for a net negative addition of approximately 100 branches. This involves consolidating about 200 existing branches where AUM has declined and adding 70-100 new branches in high-potential states like UP, Bihar, Odisha, Tamil Nadu, West Bengal, and Assam. These new branches are targeted in markets with high collection efficiency (e.g., Bihar 99.85%, Tamil Nadu 99.85%) and sub-5% portfolio risk.