Fusion Finance Limited (FUSION) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Fusion Finance Ltd. Q4 and F526 on the conference call. As a reminder, all participant line will be in the listen-only mode and there will be an opportunity for you to ask question after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Smisha from AdFactors PR. Thank you and over to you soon.

Thank you. Good morning, everyone, and thank you for joining us on the Q4 FY26 earnings conference call of Fusion Finance Limited. We have the company's senior management team with us on this call. Before we begin, I would like to remind you that certain statements made in today's discussion may be forward-looking in nature and may involve certain risks and uncertainty. A detailed statement in this regard is available in the Q4-FI26 investor presentation that has been uploaded on the stock exchanges and the company website. I now hand over the call to Mr. Sijai Garyali, MD and CEO, Fusion Finance Ltd., to begin the proceedings. Thank you, and over to you, sir.

Yeah, thank you. Good morning, everyone. Thank you for joining us today for Fusion Finances Q4 and Full Year-FI26 earnings call. FI26 was an important year of learning, testing, and institutional building for our site Fusion. During the year, we prioritized portfolio quality, materially strengthened our credit guardrails, invested in collections, infrastructure, and technology, and sharpened customer selection across both MFI and MSME businesses. At the same time, we gained far greater clarity on the operating segments and the customer profiles where we believe the business can scale with stronger portfolio quality and better productivity. This gives us the confidence that the growth we are now seeing is sustainable, operationally stronger, and backed by better execution discipline, while also positioning fusion significantly better to navigate external and operating headwinds going forward. At the same time, we remain mindful of the evolving external environment, developments in West Asia, volatility in energy prices, and possibility of inflationary pressures are risks the broader financial system will continue to monitor closely. However, let me reconfirm that we see no impact of the crisis on either the book growth or the portfolio performance. Before I move to the business update, I would like to acknowledge a few important leadership developments during the quarter. We are pleased to have Priyanka Vadera join us as the Chief Strategy Officer. Priyanka brings deep industry experience across financial services and will play an important role in Fusion's next phase of technology process and transformational-led growth. We also welcome Remika Agarwal, who has joined the board as Nominee Director representing Creation Investments, one of our key promoter group shareholders. At the same time, I would like to place on record a sincere appreciation for Mr. Kenneth Vanderwell for his valuable guidance and contribution during his tenure as a Nominee Director with Fusion. We wish him all the very best going forward. Let me now come to the business update. Q4 FY26 disbursements stood at 2140 crore, up from 1594 crore in Q3, reflecting strong sequential growth during the quarter. This momentum was driven by deeper identification of right customer segments and continued investments in automation across onboarding and collections, enabling field teams to operate with significantly lower process friction. Productivity improved materially across both MFI and MSME businesses during the quarter, helping the AUM trajectory turn positive during Q4. Another important operating change implemented during FY26 was the move towards a far more granular branch-level operating framework. Since November 25, we have classified branches across category A to D based on credit metrics, operating quality, and growth behavior. This framework is now helping drive both growth allocation and risk calibration at the branch level. We are beginning to see meaningful benefits from this approach. Currently, nearly 90% of our disbursements are coming from Category A and B branches. Importantly, we believe the business today has sufficient headroom to continue growing in a calibrated manner without meaningfully increasing portfolio risk. This confidence comes from improved customer selection, stronger operating guardrails, and significant penetration opportunity that continues to exist within our existing branch network. Our AUM increased from 6,800 crore to 7,400 crore during the quarter. Also, the average AUM for the quarter increased by nearly 200 crore sequentially. This is an important shift because the benefit of the higher average book will start reflecting positively in NII and PPOP from Q1 onwards, with operating leverage expected to accelerate from Q2. Coming to portfolio quality, the forward flow rates in current bucket continue to remain at sub 0.1% level on a net basis, and we continue to see similar trends through April and May so far this year. On collections, we are now beginning to see the benefit of people, processes, and technology investments made over the last few quarters. A large part of our monitoring and reminder systems are now becoming AI and trigger-driven, allowing early intervention, better execution consistency, and tighter portfolio monitoring. During Q4 alone, we executed over 5 million AI-led customer interactions. Mostly in collection and customer onboarding. This is helping improve customer engagement consistency, early delinquency monitoring, and field productivity. Importantly, we continue to see very strong collection efficiency trends across most of our core operating states, including UP, Bihar, and Orissa, where collection efficiencies continue to remain at approximately 99.75%. This gives us the confidence that the portfolio stability we are now seeing is broad-based and supported by improving customer behavior as well as stronger field execution discipline. A 90-plus DPD cash recoveries. Including the right of recovery crossed 35 crore for the quarter. Importantly, the right back component within this stood at approximately 21 crore compared to nearly 15 crore in the previous quarter, reflecting improving recovery efficiencies and portfolio behavior despite a far reducing right of book. As communicated earlier, our collection model in these buckets continue to remain tightly managed through combination of in-house field teams and AI-enabled calling infrastructure. On customer quality, we continue to focus on lower leveraged and more stable borrower segments, while the new to Fusion customer mix in MFI increased steadily from 24% in Q1 to 35% in Q3 and now stands at 37% at the end of Q4. Within MSME as well, we continue to strengthen our positioning in the loan against property segment, particularly within the 8 to 15 lakh ticket size category. Collection efficiency trends remain robust across both the businesses, with MFI collections improving to 99.7 and MSME at over 99.3. While our stated credit cost guidance remains in the range of 3.25 to 3.75%, In MFI over the long term, this is more so adjusted for any cyclical issues. Internally, however, the portfolio trends are modeled towards a credit cost of 2.5%. We also feel that with MSME as a portfolio kicking in, the overall weighted credit cost guidance will be closer to 2.5%. As a result of the operating and portfolio improvements undertaken over the last few quarters, quarterly credit costs have reduced significantly, down to 56 crores from 80 crores in the previous quarter. Alongside this, we are also in the process of migrating to a significantly more advanced LMS. The UAT process has already commenced last week, and the migration is expected to be completed by the end of August 2026. The new platform should materially improve branch productivity, onboarding quality, monitoring capability, and customer servicing, while reducing further process friction across both underwriting and collections. As we move into FY27, we will additionally focus on two key operating priorities. One, stronger execution around branch consolidation and overall operating efficiency at a branch level. And two, further strengthening client onboarding, retention, and calibrated book growth across existing and new centers. Coming to profitability, reported PACT for Q4 stood at 114 crores. However, excluding the one-time DTA impact, core profitability for the quarter stood at 37.5 crore, translating into an annualized ROI of nearly 2.1% for Q4. The first 45 days of FY27 give us further confidence in our direction. Growth trends remain healthy, collections continue to stay strong, and portfolio quality is stable across core markets. With the branch-led execution model now settling well on the ground, we remain confident of progressing towards our 10,000 crore portfolio aspiration by March 2027, while maintaining disciplined portfolio metrics. With that, I would like to now hand over the call to Mr. Krishan Gopal to take you through the financials in greater detail.

Thank you, Sanjay, and good morning, everyone. I am pleased to present our Q4 and FY26 financial performance with user context and at our last interaction. This has been a year that reflects meaningful financial stenting across capital, liquidity, margins, asset quality, and provisioning. Let me take you through each of them in turn. Before I get into the financials, a brief but important word on where we have come from. During the earlier few quarters, the company was navigating financial covenants under stress, caveats ongoing concern, and cautious lender sentiment. I am pleased to report that all these challenges are now firmly behind us. Improvement in our book is clearly evident in strong asset quality matrices like gross NPA of 3.21% and net NPA of 0.51%. Our capital and liquidity position remains robust and well capitalized. And of course, this additional liquidity comes at a cost. So this has an additional finance cost of about 7 to 8 crores for the quarter. In addition, to own balance sheet liquidity, company holds sanctions in hand amounting to 1245 crore, which are drawable at any time. Further reinforcing our funding flexibility. And further in addition to this, company has a strong pipeline of about 2,500 crore. Capital adequacy stood at 36.46% comfortably above regulatory requirement. This level of capitalization provides meaningful headroom to support the target of around 10,000 crore AUM in FY27 without requiring any further equity inclusion during this year. During Q4 of this year, we raised 2,040 crores in new borrowings, comprising of term loans, direct assignments, and pass-through certificates. For the full year FY26, total debt of about 6,000 crores across our lender base was raised. During the fiscal, we onboarded 11 new lenders, underscoring the resilience and credibility of our franchise within the financial ecosystem. The lender engagement story has continued to evolve positively through Q4. Several credit partners that were previously in wait-and-watch mode have actively reengaged with fresh credit lines extended by both new and existing lenders. The composition of our borrowing base has shifted favorably. Private sector banks now account for 42% of our borrowings, up from 36%. While public sector banks' exposure has declined from 27% in FY25 to 16%. Reflecting our broadening and diversification of our institutional-lender relationship. For the development financial institutions. Thank you. The marginal cost of borrowing moderated further to 10.8% in XIRR terms in Q4 FY26 from 11.4 again XIRR in Q3 FY26. This is a 100 bps quarter-on-quarter improvement, reflecting the improving quality of our borrowing mix and the re-engagement. Engagement of a broader lender base at a more competitive rate. Going forward, we anticipate our margin cost of borrowing should continue to improve from current levels as the diversity of our sanctions and depth of our lender relationship grows. But of course, this is subject to the current macro environment and geopolitical environment. Our credit ratings remain stable across instruments. Long-term debt and NCDs are rated CRYSL A- stable and ICRA A- stable and care by care at A with a stable outflow. With CARE Upgrading Outlook from Rating Watch with negative implications to stable in quarter 4. The CARE Outlook Upgrade is an external validation of the improvement in our financial and operational profile and gives us confidence in further rating momentum as our profitability and asset quality continue to improve. We continue to engage with our other two rating agencies on the update discussions. Net interest margin On, for the Q4 FY26, stood at 11.44%, up 12 basis points from 11.32 in Q3. Net interest income for Q3 FY26 was 220 crore, compared to 237 crore, a 6% sequential decline, primarily reflecting higher finance costs due to the additional liquidity which we have kept. As we have discussed in the beginning of the session. And welcome to the call. For the full year FY26, OPEX was at around 832 crore. As a result, pre-provisioning operating profits for Q4 FY26 stood at 93 crore, broadly flat quarter on quarter at 94 crore in Q3 FY26. And up 3% year-on-year from 90 crore in Q4 or FY25. This flat TPOP is after absorbing additional finance cost of about 7 to 8 crores due to additional liquidity maintained during the quarter. The full year FY26 POP was 362 crore. This demonstrates the franchise underlying earning strength and the tangible benefits of the operating efficiency systematically built throughout the year. Profit before tax for Q4 FY26 was 37 crore, up 166% from 14 crore in Q3 FY26. A defer tax asset of 76.8 crore was recognized during Q4 FY26 arising from temporary taxable differences, primarily from the ECL provisions to the extended This DTA recognition reflects our confidence in the trajectory of future taxable profits. Thus, with the impact of recognition of DTA, the path for the quarter was 114.19 crore. Excluding the impact of DTA, the annualized ROA for Q4 FY26 stood at 2.08%. For the full year FY26, PAT was 13.9 crores, making a decisive return to the annual profitability after a loss of about 1200 crores in FY25. On ECL, we had provisions as per ECL model of 53 crores during the quarter, write-offs were 136 crores, closing ECL was 270 crores. This works to a provision coverage of 54% on stage 2 assets and 71.5% on stage 2 assets. I mentioned that during this quarter we have released management overlay. Based on the monthly net forward flow rates from the current bucket, which is 0.03 in Q4 and 5.6, and continued improvement in delinquency buckets, and the quality of the new book performing at 99.77% collection efficiency, we remain positive to maintain our stable state credit cost of 2.5 to 3%. The company has maintained a strong emphasis on portfolio hygiene and conservative provisioning through Q4, as such quality matrices improved further during the quarter. Gross NPA declined to 3.21% in Q4 from 4.38% in Q4. This is a quarter of gross NPA improvement. Net NPA improved to 0.51% from 0.63% in Q3 and 0.60% for the internal calibration. These are among the most important validation matrices for our recovery. Total equity as on 31st March 26th to that 2,456. To conclude, Q4 and FY26 mark the completion of a meaningful phase of financial stabilization and the return to profitability. The year has been characterized by the stable and improving margins, strengthening provisioning coverage, healthy liquidity, and a materially improved lender landscape. As we enter FY27, our financial priorities are clear. Sustaining Financial Discipline and Cost Efficiency. The cost to income ratio improvement as the primary lever of the operating leverage. Deepening and diversifying our lender relationships to support EM of our 10,000 crore target and continuing to benefit from the margin cost of borrowing improvements as lender confidence builds on. With improving asset quality, robust capital adequacy, a strengthening funding profile across 11 new onboarded lenders in FY26, and a clear path to credit cost normalization, we are well positioned to deliver steady and sustainable progress in the year ahead. Thank you, and with that, I open the floor for the Q&A session. Sanjay and I, along with the rest of the management team, are available to answer your questions. Thank you.

Thank you, sir, for your presentation. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are request to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Abhijit Tibrewal from Motila Loswell Financial Services Ltd. Please, go ahead.

Yeah, good morning, sir. Thank you for taking my question. So, two, three things. One is this TTA that we have created in this quarter. Is this the only quarter where this TTA will be created or going forward also there can be more TTA information?

Thanks, Abhiji. So, as you are aware, we were not recognizing DTA, as there was a caveat on the going concern. Now, we have started the Defer Texas Act for the first time after about four or five quarters. Now, going forward, it is going to be a BAU as far as the... The protect that is concerned, and to the extent recoverable and availability, we are going to recognize the DTA every quarter or year based on the availability.

Got it. So for the next few quarters, we can see a DTA creation, and to that extent, there could be tax write-backs in the coming quarters.

Yeah, that's the normal situation, and we'll follow that.

So Abhijit, the total DTA, as we are aware, is close to around 390 crores. So, here we release about 77 crores. Now, the balance is left, which is, which in the due course on a pro-rata basis, so there is no hurry to consume that. But on a pro-rata basis, in the next 12 to 18 or 24 months, we will consume as and what the auditor is also comfortable with. But that's the amount that is left to be, let's say, consumed or whatever. So, 390 minus 77 is what is still left on the table.

The other question I had was on the liability side. Of course, I mean, last year, meaning FY25, we have reported a big loss. So, obviously, PSU banks. I don't really give out lending lines. Now that we have at least reported a profit this year, FI26, do you expect that going forward lending lines from PSUs can also start opening up? And the related question in the opening remarks, our presenter said that we are in discussion with the credit rating agencies, the other two, for an upgrade. So, I mean, what is it that they are looking for? Is it... Improvement in profits, improvement in asset quality that they will be monitoring or do they also have some size, the balance sheet size.

So, I'll go one by one on your questions, Abhijit. So, one is... And going forward, we have had discussion with all the PSU banks, and they were looking for the... The final balance sheet, and everyone is broadly open to... And while we speak, our proposals are already with about 5-6 banks.

I think the PSU banks may want to start with a credit guarantee scheme with everybody. So you are aware that we have close to about 300 crore that we can take up. My sense is that our applications are under process. Most of the 300 crore that we take up will come from the PSU banks. And that will trigger the normal lending from them.

On the rating fund, we continue to engage with all the rating agencies, and as per our discussions, the other two rating agencies were looking forward to our annual results and the balance sheet. And then they wanted to take a call. However, in between, you know, this geopolitical situation has happened. So now it's less of the internal because we are already profitable, asset quality is robust, and they should be comfortable. But I think the whole geopolitical situation and the performance of the industry would be a monitorable for them. However, as we have mentioned, we are confident and we continue to engage with them. Thank you.

And then the last question I had was on how should we look at FY27 now? A few things that came out during your opening remarks was that despite this West Asia war, we are not seeing any impact on the world. And asset quality collections holding up well. Then we also said that on credit costs, maybe 3.25, 3.5 is through cycle credit costs. But this year, given that MSN is also going to ramp up, we are thinking about something in the board of 2.5%. So, if I want to put this all together, how should we think about AUM growth in FY27 and how the borrowing costs could shape up and the fact that going forward, the increased income reversals could be lower, so margins could expand. What could that translate into the ROAs for this year?

So, Abhijit, I'll answer your first part, and I'll let Krishan take the second one. In terms of FI27 outlook, we continue to hold firm to the guidance of 10,000 crore. And like I explained, the first 45 days, which have been like completely part of the West Asia crisis, we do not see any impact. We also feel that, so you're absolutely right, there could be some challenges in the economy, and there could be inflationary pressures. Our view is that in the last one, one and a half year, the book that we have built is very, very strong in terms of the credit matrices that we have used. And I think these kind of measures help manage whenever the, let's say, macro headwinds come, because nobody knows when the macro headwinds are going to come. But I think the prudence or the overprudence that we used in customer selection, that is going to ensure that the portfolio is able to manage multiple headwinds on the macro side. However, I think the government has also talked about it, austerity measures have to be there, and we have already started working on austerity measures in the last 30 to 45 days, and there will be certain costs which we think we need to cut down, whether it is... Some additional branch costs or travel costs, but there will be, there are already significant austerity measures that we have put in place. However, from an AUM growth perspective and portfolio perspective, we will continue to hold that 10,000 crore and let's say a portfolio flow rate of between 0.1% to 0.15% net in the current bucket. Rest, I will leave to Krishan to answer.

Swarajit, can you please elaborate what was the other question?

So, what I was trying to understand is, if I look at both quarter also, right, I mean, we are yet to see an improvement in the peak of the active peak of the level. So, going forward now, yeah, that's right. Now, going forward, given that maybe interest income reversals which were happening become lower, hopefully the marginal cost of borings... Margin is what takes him by me.

Yes, so the baseline for this is, yes, the AUM has grown during this quarter, however, As I mentioned, we have got the additional liquidity of about 500 crores, which has an impact on the... And deliberately, I mean, the DA income has been accrued less. So, So, if we nullify this impact, the P-pop would have been higher by that amount. As far as OPEX is concerned, at a broad level, the total OPEX for this year has been 832 crores. What we envisage for the next year is broadly a 5-6% increment into that at an annual level. Having said so, As a team, the whole of Fusion Finance team is running an OPEX rationalization project, and we are going to look for the avenues wherever possible, including, as we mentioned in the past, branch rationalization and any first two processes, and we have engaged some taking help of some experts also on that front. So, that should result into an OPEX reduction, OPEX rationalization. OPEX. The cost guidance, as Sanjayi has mentioned, I mean, is...

So, Abhij, net-net, PPOP, you will start seeing growth in Q1, and the acceleration in PPOP that we all expect as a part of the AOP will start coming in from Q2. So, the real acceleration will happen in Q2, but you will see growth in Q1 on PPOP. This answers all my questions.

Thank you so much, and I wish everyone...

Thank you. Our next question comes from the line of Nitesh from Investec. Please go ahead.

Thanks for the opportunity, sir. So, first question is on interest income. On a Q&Q basis, interest income is flat, despite we seeing a decent AEM growth on a Q&Q basis and sharp improvement in asset quality. So, what is the reason for flat interest income on a Q&Q basis?

Nitesh, any other question? We will answer them together.

Yeah. Second question is on active borrowers' growth. So, how do you see active borrowers' growth in FY27 and, let's say, any target of new customer acquisition for FY27? Third question is on what are the plans to add branches in FY27? These are the three questions, sir. Okay.

So, on the flat NIA, Krishan has already explained flat or slightly reduced NIAs essentially because the average book growth impact will start coming in. Right now, you see the average book growing or the average AEM growing by already between 150 to 200 crore. So, that is about 6-7 crore upside. However, the dent comes from the additional liquidity, that's about 8 to 9 crore P&L impact, lesser DA that we've done, that's another about 6 to 7 crore. So that's why you see the NII flatter. However, like I explained, Q1 onwards, you will see this NII growing, and then the acceleration will start in Q2 because that's where the real acceleration on the average book will start. So right now you see the AUM growing, but the average book will grow much, has grown much lesser. You understand how the average and the EOP concept operates. So, that's one. Hope that answers your flat NIA. On the active borrower, see, there's a call that we have taken that we will go slow on entry-level borrowers. So, that's less than 40,000. That's why you see that coming down, there's a slide that we have explained in less than 40,000. And between 40,000 to 1 lakh is where the sweet spot is. So, from a new client acquisition, most of the upside in quarter 4 has come from the new loans rather than the ticket size increase. The ticket size has only gone up between these two quarters by 2-3%. The real upside has come from the number of borrowers which has gone up by about 30-31%.

We were acquiring, in terms of numbers,

about 34% volume was coming, disbursement was coming from new borrowers. This time it is 37%. So now you see that focus we've been telling you that between 35% to 40% of the new volume will come from, of the new disbursement will come from new borrowers. So now you see that inching towards 37. The good thing is that in that 37% and we have explained, majority of it is coming from less leverage borrowers and less new to credit borrowers. And 80% of that is coming from just one borrower other than Fusion. Yeah, so that's on the active borrower. And we continue to, so 37% of this, between 35% to 40%, right now we are 37%. I think we will be closer to 40% on new client acquisition on the new disbursement. On the branch consolidation or on the branch growth, so see what we had done was that when our book was at about 12,000 crores, we had 1,400 microfinance branches. There were some 250 branches which we had split because of the existing AEM. Of the branches had crossed 12 to 14 crores. Now, we all are aware that the AUM has dropped since then. So, there are close to about 200 branches, which we had split to form another set of branches. Now, the parent branch itself, the AUM has collapsed, and that market can be managed by the parent branch rather than the offshoot branch that we created. The plan... Hence is that of these 200 branches, a lot of branches we will consolidate, and there are about 7200 branches that we will add. So, the net addition will be negative by about 100, but that is more like a technical because these 200-240 branches are more like a drag on OPEX and not technically now required considering that the parent branch can manage. And these 70 to 80 branches, essentially, we are looking at in three states between Tamil Nadu, West Bengal, and Assam. In all these three markets, our collection efficiency is around 99.8, and the portfolios are roughly sub-5%.

Sure, sir. One more question on MSME.

Thank you. I'm sorry to interrupt, but you may please rejoin the queue for more questions. Thank you.

Sure. Thank you.

Our next question comes from the line of Perel Shah from IFL Capital. Please go ahead.

Yeah. Hi, Sanjay and Krishan. Good morning, and congrats on a good set of numbers. I had two questions and probably two follow-ups, if that's okay. So, first is with regards to, I understand Krishan has given fairly detailed explanation with regards to yields and why I did not see, say, growth in this quarter. What I wanted to understand is, have we taken any rate hikes from April? Importantly, is there actually a scope for us to now take a rate hike, given that the asset quality trends are now on an improving trajectory, And the reported numbers now already start factoring in a better credit cost outcome. And while the cost of funds in general for the markets is likely to increase or has already started increasing, for especially us, it's unlikely to increase at least in the near term. So is there a case for us to, say, increase the rates on an incremental basis?

Any other question, Virat? Then we will collectively answer.

Sure. The second question I had was with regards to if you can give some numbers around the disbursement growth and also the collection efficiencies in the month of April and maybe May 1st half. I understand you gave the qualitative flavor, but if you can help us with numbers, that will be quite helpful. And the two clarifications or a follow-up that I had was you mentioned about CGS MFI helping us. The 300 crores cap now, is that very clear that it is at a borrower level and not at a lender level? And the second was the DTA recognition that you mentioned of, say, the residual 330-odd crores. Will that be over the next four quarters or six quarters or eight quarters? Just some clarity over that.

Okay, so the first three questions I will answer. DTA, I will let Krishan take. So, rate hike, see, we have been saying that for the last nine months, there was no rate increase that we had done. And despite the borrowing cost going up by 150 to 200 basis points. Now, from 1st of April, we have increased the rates by a small 0.75%. Which is in line, despite the borrowing cost having gone up by 200 basis points, and this is in line with the industry, but 1st April onwards, rate is increased by 0.75%. We can't talk about how this will pan out in future and what rate hikes will happen in the future. So we will wait and watch. On the disbursement growth, normally quarter 1 is about 25-30% down as compared to quarter 4, because quarter 4 is supposed to be elevated, and quarter 1 is a little lazy because of multiple things. For us, quarter 1 has been very similar to quarter 4. Quarter 4, we were at about 700 crores. So far, we are at about between 625 to 650 crores. So that's like just 4 or 5 percent lower than quarter 3, quarter 4. But this is budgeted. As per the AOP, the 10,000 crore AUM and the 9,000 crore disbursement plan. This is as per the part of the AOP. We had actually budgeted Q1 to be at 10 to 15% lower, but we are pleasantly surprised that we are better than that or there. On the collection efficiency, we continue, and reconfirming, we continue to be 0.1% flow rate net in MFI, which translates to a net collection efficiency of 99.9% and a gross collection efficiency of 99.75. This is for the entire month of April and for the first 15 days of May that have passed. On the credit guarantee scheme, I think there is a lot of clarity while we have given applications. Our understanding is 300 crore at our level, but there are a lot of other questions to be asked and answered. So we have given our applications and now we are waiting. So on credit guarantee, I think we should wait and watch for further steps and then see how it unfolds. On the DTA recognition, I will leave it to Krishan.

So, well, on the DTA recognition, we will recognize the DTA as and when the profit comes, and whatever the tax liability is, equivalent to that, we will recognize DTA. That is the plan as of now. And we will assess the situation at the year end again, and this is a dynamic situation. So, as of now, it is going to be equivalent to the tax liability. So, it will not be four to six quarters, it may be more than that.

It will be between 18 to 24 months.

Got it. And just to clarify, Krishan, what you mentioned on the DTA pieces, which would imply that there would be a zero tax rate or no tax for the next eight quarters, right? You won't be recognizing it like this in the one you did in this quarter.

That's correct, everyone. As I said, we will revisit these situations every year end. So we'll do that. As of now, it looks like Nepal. As of now, what you're saying, yes.

Thank you. Mr. Shah, you may please rejoin the queue if you have a more question. Our next question comes from the line of Rajeev Mehta from Yes Securities. Please go ahead.

Yeah. Hi. Good morning. Congrats on very good numbers. So most of my questions are answered, but just quick two, three things. One is with regards to this Maddex recovery. So, you can just quantify the pool from which we are recovering and whether this accelerated 50-odd crore per, you know, income, per quarter income. Can that continue? And what is our estimate then for the whole year for Maddex recovery? And would it entail any incremental OPEX or within the same OPEX that the recoveries will come? Second is, on the MSME strategy, it is 10% of the book roughly at this point in time. But if you can just kind of, you know, take us through, regularly, what is the strategy for growing the MSME book? Because right now it's being done from selected branches, the ticket size is 4-5 lakhs, but I think initially you spoke about targeting 8-5 lakhs of ticket size. So, what is the scale-up plan? It's going to elaborate on that. And second is, we also spoke about migrating to advanced LMS by August. For better productivity and quality. But would it kind of hamper impact, you know, the business in the near term? Yeah, these are the three questions. Thanks.

Okay. Thanks, Rajiv. So, Rajiv, to your first question, the total, if you see the total right back or the income that we received this year is about 110 crore. We are targeting between 150 to 160 crore, which means additional about 40 crore. We have explained the cost of collection in this hard bucket is between 25 to 30 percent. So, you can assume that 40 crore incrementally, net of cost will actually be 30 crore. 40 crore at 25 percent, so knockoff 10 crore. So $30 is over incremental. And for all hard bucket collections, we can assume 20% to 30% as our cost of collections. So, net, whatever we recover, 75% straightaway goes into, 75% to 70% goes straightaway into bottom line. So, we will, considering that we have over 2,000 crore, while the recent book, there is no write-off, there is almost literally zero write-off that we will be doing going forward. But I think the technology and the strategy that we are using to collect, that will lead to this higher... And not because of more availability of pools. So that's the way we are looking at it. Just to give you a number, today we are able to reach out to over 190 plus borrowers through the bot calling that we have started. You understand bot calling is not something that gets by design upfront. It takes time to set in and all. But this will not, this is not like coming at a very high OPEX. And this is like the OPEX is actually compressed by about 110th or 115th. Second, on the MSME strategy. Now, the MSME strategy that we are working on, you understand our product is income assessment. We are in tier 3 and tier 4 towns. There are two additional things that we are doing. We are creating more right to win in the ticket size between 8 to 15 lakhs, and we are saying, okay, we don't want to play in cash flows. So, we don't want to deviate on cash flows, we will not deviate on FOIR, but we want to see how a better cash flow customer we can do with, let's say, a different collateral. So, if you have to ask me, the risk that we are taking is on the collateral and not on the cash flow of the customer, and that confidence is coming from 6 to 9 months of experimentation that we have done, where the current bucket collection efficiency is 99.5, 99.4. So that there are two channels that we are adopting. We have also introduced the connector channel few months back and we're seeing good upside from there. So that's about 25 to 30 percent volume in a steady state will come from the connector channel. On the advanced LMS, so... The way the advanced LMS will be institutionalized or set up is that there are 10 branches that we will first be piloting. Then we will be going to about 200 branches once we are confident. And there's a backtesting. And this model already operates in 223 MFIs. So it is not something that is like completely foreign to the MFI sector. It is just a little bit of customization, Rajiv, and we are quite confident that after this pilot of 10 and 200 branches, the rest of the 1,200, 1,300 branches will be simple to execute. So we don't expect, and that is why we did not keep it in the end of the financial year. We kept it somewhere, the UAT started about a week back. So May, June are typically not like very accelerated times, and hence we have kept it at a time where we will have plenty of time to check if there are any issues or transition challenges.

Yeah, thank you so much, and best of luck.

Thank you. An next question comes from the line of Kaushik Agarwal from Hightone Securities. Please go ahead.

Yeah, hi, sir. Thank you for the opportunity. Sir, couple of questions. So, firstly, on the other income line item, I can see there has been a sharp jump on Q&Q on YOY basis. Can you give some reason like what really explains this? Number two is on the ECL coverage. So I have been noticing that your coverage across the buckets have been coming down on a sequential basis. So should one expect that we have broadly touched the trough or there is some more scope for ECL coverage to come down. And lastly, if you can give some color around, we are already like almost 50 odd days into this quarter, how is the broader demand trend you are seeing in any sort of any particular customer category or geographical segment where you are noticing some kind of a stress or where you have tightened your underwriting filters.

So, I take the third question and let Krishan answer the question on other income and ECL coverage. So, in the first 45 days, we have, so there are, so while there is no stress on the portfolio, and there is no impact that we see in terms of demand, although, and this is two months back, we did, we made two changes. On the MSME side, there are certain sectors or foyer generally we went a little slow on, so about 10 percent. 15% we reduced specifically on the fringe customers or on the customers which were on the borderline. And second, we said that about 5% to 6% of our business was coming from Fusion plus 2 lenders when we were acquiring new customers. So this we have stopped. We are not doing in microfinance Fusion plus 2 lenders for the last 2 months now where we are acquiring new customers. So these are the 2 changes that we have done on. Let's say ensuring that, and this is not just the West Asia crisis or the global issues. Every quarter, the intention is that how do we keep cutting the bottom two deciles or the bottom one decile, and this is also a part of that. So we are on target for, let's say, 10,000 crores. We don't see any major headwinds. Austerity measures will continue to happen. Other two, Other Income, Increase and ECL Coverage, I'll let Krishan answer.

So on the Other Income front, the increase is mainly due to the increase in the right of recovery. And coming to the ECL, the ECL coverage for the Stage 2 and Stage 3 is... For stage two, it has increased. For stage three, it is broadly similar. Stage one, yes, it has come down from 1.1 to 0.9%, which is basically reflecting the better flows over last two, three quarters, and this is purely coming from that ECL model, and we are confident on that front. So, this is... Actually, it should remain around these levels now.

Okay. Thank you so much, sir. Best of luck.

Thank you. Our next question comes from the line of Bhante Chawla from ASK Investment Managers Limited. Please go.

Thank you, sir. Thank you for giving me the opportunity and Congress on a good sort of numbers. Just a few queries on the Bihar portfolio. We are growing strongly, but there has been an announcement from the Bihar on the Act, which is similar to Karnataka Act they have done. So are we seeing any impact on our portfolio or in terms of customer behavior on that? Or is it just a start they have announced, there is no official, so that's where there is no impact as such. How one should see this portfolio going in?

Any other questions?

Yeah. Secondly, on the, as you said, in terms of stage 1 and stage 2 and stage 3 ECL positioning, just one clarification, are we increasing or any coverage? Percentage due to geopolitical provisioning, which we have seen in one of the MFI NBFC have done, higher provisioning due to geopolitical. Any changes in terms of that on ECL?

So, your first question is on Bihar. So, we were actually the first ones to come out in the market. This is about one and a half months back where we said that Bihar for regulated entities is actually welcome. And it is a time that we need to inform the customers and be able to decimate information. Bihar continues to perform extremely well and this is not just for us, for everybody, for our peers as well. While I am talking, the collection efficiency of Bihar continues to be 99.83. This is March and April and May it is 99.85. So, Bihar continues to be very strong in terms of collection efficiency. I think we should equate Bihar to Tamil Nadu because a similar legislation came in Tamil Nadu the way... The microfinance industry handled it with the administration, especially the MFIN or the SRO. I think that was commendable. I think same effort has gone in Bihar. If you see Tamil Nadu, again, close to everybody is at a collection efficiency of 99.5. Our collection efficiency in Tamil Nadu in March was 99.82. Right now, it is 99.85. So I think Bihar is similar to what TN is, and I think we welcome anything that encourages the regulated entities. Or titans around, let's say, the unregulated entities. So I think that is, and there is nothing negative that we see in Bihar. On the stage provisioning, I leave it to Christian too.

Stage 1, as we have discussed, I mean, 2, it has gone up from 66 to 71. Stage 3, it is probably similar, and as I explained, on stage 1, this has come down, but this is purely a reflection of the better collection efficiencies we are clocking month-on-month, quarter-on-quarter. He is saying the provisions that,

he is saying one of the large lenders has taken additional provisions. So are there any additional provisions that you have taken on the ECL model?

So, on that front, what we have done is, although as I mentioned, we had in the queue for the best collection efficiencies and lowest flows, there is no impact on the ground. However, last quarter we have drawn about 15 crores, at least 15 crores from the management overlay. Due to this, to be conservative, we have drawn lesser at a 10 crores, so 5 crores lesser we have drawn down. So that's the measure we have taken.

I think overall you should look at it from an overall perspective. I think our coverage anyway is what in the higher stages between 75-76%, which the market is at about 65%. So we are anyway provisioned 10% more than the market or the industry. And we don't see a need to do that neither in April and May figures nor in the quarter-four figures. So, it is already, we are already at a provision level of 10% more than the market.

Thank you, thank you. That was very helpful, sir.

Thank you. Ladies and gentlemen, due to the time concern, that was the last question for today. Also, if you have a more question, you can call a company directly after this fall. I know in the conference, over to the management for the closing remarks. Thank you. And over to you, team.

Yeah, so thank you so much for being patient-free. I think supporting us during the tough times, my assurance and the entire fusion team's insurance, along with the senior management, is that you will see performance on, you're seeing performance on CAD coming in. Most of this performance is come because of credit cost reducing. Some of it is happening because of the AEM growth, because you're not seeing the average AEM so far. However, Q1 onwards, you will see the AUM coming in, which will lead to a higher income growth for your PPOP. And then Q2 onwards is where the real kicker or the acceleration will happen. So that we are fairly confident and we are supremely committed to that as an overall objective. And at the same time, whatever crisis that we see in terms of global headwinds, we are fairly confident that the portfolio has the ability to manage those headwinds. So, thank you so much. Thanks for patiently backing us for the entire year.

Thank you, sir. Ladies and gentlemen, on behalf of Fusion Finance Ltd., that concludes this conference. Thank you for joining us. I'm Yuma Nourish Connections.