Q1 2027 Fusion Finance Ltd Earnings Call

August 10, 2026

Speaker #4: Ladies and gentlemen, good day and welcome to Fusion Finance Limited Q1, FY27, earnings conference call. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Operator: Ladies and gentlemen, good day and welcome to Fusion Finance Limited Q1 FY27 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand over the conference to Ms. Hanisha Shah from Adfactors PR Investor Relations. Thank you, and over to you, ma'am.

Speaker #4: Should you need assistance during this conference call, please signal and operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded.

Speaker #4: I now hand over the conference to Ms. Hanishi Shah from EdFactors PR, Investor Relations. Thank you. Over to you, ma'am.

Speaker #2: Hi, thank you so much. Good evening, everyone, and thank you for joining us on the Q1 FY27 earnings conference call of Fusion Finance Limited.

Hanisha Shah: Hi, thank you so much. Good evening, everyone, and thank you for joining us on the Q1 FY27 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 uncertainties. A detailed statement in this regard is available in the Q1 FY27 investor presentation, which has been uploaded on the stock exchanges and the company website. I will now hand over the call to Mr. Sanjay Garyali, MD and CEO of Fusion Finance Limited, to begin with the proceedings. Thank you, and over to you, sir.

Hanishi Shah: Hi, thank you so much. Good evening, everyone, and thank you for joining us on the Q1 FY27 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 uncertainties. A detailed statement in this regard is available in the Q1 FY27 investor presentation, which has been uploaded on the stock exchanges and the company website. I will now hand over the call to Mr. Sanjay Garyali, MD and CEO of Fusion Finance Limited, to begin with the proceedings. Thank you, and over to you, sir.

Speaker #2: 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 uncertainties.

Speaker #2: A detailed statement in this regard is available in the Q1, FY27, Investor Presentation which has been uploaded on the stock exchanges and the company website.

Speaker #2: I now hand over the call to Mr. Sanjay Periyali, MD and CEO of Fusion Finance Limited. To begin with the proceedings, thank you and over to you, sir.

Speaker #5: Good evening, everyone, and thank you for joining us on Fusion's Q1 FY27 earnings call. Over the last 18 months, there has been a significant change in the microfinance industry.

Sanjay Garyali: Good evening, everyone, and thank you for joining us on Fusion's Q1 FY27 earnings call. The last 18 months, there's a significant change that's happened in the microfinance industry. The bottom segment, which constituted of heavily leveraged customers or ones who did not have a steady income stream, moved out of the formal MFI sector. The customer who remains is, in our view, better placed to service her obligations and navigate the external headwinds than she was at the start of the previous cycle. Fusion has used the same period to reshape its portfolio, more selective on customer acquisition, more granular on where we grow, and more technology-led on how we manage the business. Q1 gives us increasing confidence this strategy is working. Business momentum strengthened. Disbursement grew 88% year-on-year to INR 1,783 crores, while AUM grew approximately 4% sequentially to INR 7,702 crores.

Speaker #5: The bottom segment, which consisted of heavily leveraged customers or ones who did not have a steady income stream, moved out of the formal MFI sector.

Speaker #5: The customer who remains is, in our view, better placed to service her obligations and navigate the external headwinds than she was at the start of the previous cycle.

Speaker #5: Fusion has used the same period to reshape its portfolio—becoming more selective on customer acquisition, more granular on where we grow, and more technology-led in how we manage the business.

Speaker #5: Q1 gives us increasing confidence the strategy is working. Business momentum strengthened, disbursement grew 88% year-on-year to 1,783 approximately 4% sequentially to 7,702 crores. On the quality front, approximately 85% of the customers disbursed to in Q1.

Sanjay Garyali: On the quality front, approximately 85% of the customers disbursed to in Q1 had just one other lender besides Fusion, and 37% were new to Fusion. A figure that moved closer to 40% in June with a similar trend into July. This is in line with what we have been saying about 40-60 ratio on new versus existing. Last quarter, we described the methodology we use to categorize MFI branches by credit quality, operating performance, and growth behavior. That framework is delivering the outcomes we expected, helping us decide with more precision where to grow, where to calibrate, and where management attention is needed. The result shows in portfolio quality. Collection efficiency remains above 99.75%. Risk and growth decisions are increasingly now embedded at the branch level, letting us intervene early when portfolio behavior shifts. We are also evolving how we manage harder bucket collections.

Speaker #5: Had just one other lender besides Fusion, and 37% were new to Fusion—a figure that moved closer to 40% in June, with a similar trend into July.

Speaker #5: This is in line with what we have been saying about 40-60 ratio on new versus existing. Last quarter, we described the methodology we use to categorize MFI branches by credit quality.

Speaker #5: Operating performance and growth behavior. That framework is delivering the outcomes we expected. Helping us decide with more precision where to grow, where to calibrate, and where management attention is needed.

Speaker #5: The result shows in portfolio quality, collection efficiency remains above 99.75%, risk and growth decisions are increasingly now embedded at the branch level. Letting us intervene early when portfolio behavior shifts.

Speaker #5: We are also evolving how we manage harder bucket collections. Until last quarter, external agencies handled roughly 30% of the hard bucket recoveries, we have now moved that capability fully in-house combining AI with our own collections and branch teams.

Sanjay Garyali: Until last quarter, external agencies handled roughly 30% of the hard bucket recoveries. We have now moved that capability fully in-house, combining AI with our own collections and branch teams. We thus run two models on hard bucket collections. One, dedicated collections team engaging customers directly towards a resolution, and two, AI handling initial identification and contact before the branch teams take over. This transition hasn't cost us recovery performance. In fact, we continue to deliver upwards of INR 35 crore quarterly from the 60-plus DPD book, and INR 21 crores of this is from the written-off portfolio. That gives us greater control over customer engagement, less dependence on external agencies, and a more scalable recovery model. The same discipline is shaping in our network. In FY27, between now and Q3, we expect to open around 50 new MFI branches while rationalizing about 100 existing ones.

Speaker #5: We thus run two models on hard bucket collections: one, a dedicated collections team engaging customers directly towards resolution; and two, AI handling initial identification and contact before the branch team’s takeover.

Speaker #5: This transition hasn't cost us recovery performance. In fact, we continued to deliver upwards of ₹35 crore quarterly from the 60-plus DPD book. And ₹21 crore from this is from the return of portfolio.

Speaker #5: That gives us greater control over customer engagement, less dependence on external agencies, and a more scalable recovery model. The same discipline is shaping in our network.

Speaker #5: In FY27, between now and Q3, we expect to open around 15 new MFI branches while rationalizing about 100 existing ones. The goal isn't just branch count; it's having the right branches in the right markets serving the right customers.

Sanjay Garyali: The goal isn't just on branch count. It is the right branches in the right markets, serving the right customers. Turning to how we are extracting more value from our distribution franchise we have already built, starting with MSME. MSME collection efficiency remains above 99.3%, giving us confidence to move into calibrated expansion. Disbursement moderated in April, typically a seasonally soft month for mortgages, but May and June returned to Q4's average monthly levels. We continue to deliver on our right to win with no deviations on cash flows. In early Q1, we had identified 200 existing MFI branches in attractive MSME catchments, where we would want to source secured business. The customer segments stay distinct, but we will leverage existing real estate for MSME sourcing. We are starting with around 50 of these locations in this quarter and will expand progressively based on our performance.

Speaker #5: Turning to how we are extracting more value from a distribution franchise we have already built, starting with MSME. MSME collection efficiency remains above 99.3%, giving us confidence to move into calibrated expansion.

Speaker #5: Disbursements moderated in April, typically a seasonally soft month for mortgages, but May and June returned to Q4's average monthly levels. We continue to deliver on our right to win with no deviations on cash flows.

Speaker #5: In early Q1, we had identified 200 existing MFI branches in attractive MSME catchments, where we would want to source secured business. The customer segment stayed distinct, but we will leverage existing real estate for MSME sourcing.

Speaker #5: We are starting with around 50 of these locations in this quarter and will expand progressively based on our performance. We are also entering Tamil Nadu for MSME for the first time.

Sanjay Garyali: We are also entering Tamil Nadu for MSME for the first time using our existing MFI retail infrastructure, but with a separate MSME team and independent underwriting and credit processes. Within MFI, our PQM model is delivering encouraging value across roughly 250 branches. In parallel, we are also launching an individual loan product across these branches for a select, more engaged segment of MFI customers. Lower on leverage, higher business vintage, and an established repayment track record with Fusion. This isn't simply a larger ticket MFI loan. Initial assessment originates with MFI, but credit evaluation has a close oversight from the MSME credit team. We will scale this gradually based on portfolio behavior with potential for individual loans to reach around 10% of MFI disbursements over time. Together, these initiatives let us extract more value from an existing distribution franchise while keeping customer segments and credit architecture clearly differentiated.

Speaker #5: Using our existing MFI retail infrastructure, but with a separate MSME team and independent underwriting and credit processes. Within MFI, our PQM model is delivering encouraging value across roughly 250 branches.

Speaker #5: In parallel, we are also launching an individual loan product across these branches for a select more engaged segment of MFI customers. Lower on leverage, higher business vintage, and an established repayment track record with Fusion.

Speaker #5: This isn't simply a larger ticket MFI loan. Initial assessment originates with MFI, but credit evaluation has a close oversight from the MSME credit team.

Speaker #5: We will scale this gradually based on portfolio behavior, with potential for individual loans, to reach around 10% of MFI disbursements over time. Together, these initiatives let us extract more value from an existing distribution franchise, while keeping customer segments and credit architecture clearly differentiated.

Speaker #5: We have also identified specific MFI customer segments where we can increase share of wallet, and we are developing differentiated products for them. Most of these would either be launched while we are speaking or will be launched in the next two fortnights.

Sanjay Garyali: We have also identified specific MFI customer segments where we can increase share of wallet, and we are developing differentiated products for them. Most of this would be either launched while we are talking or would be launched in the next fortnight. Technology is another area where the conversation at Fusion is changing. In Q1, our AI-enabled platforms handled over 6 million customer interactions, reaching more than 1.1 million customers. Inbound calls are now quality monitored using GenAI, improving consistency while lowering calling costs. This is translating into earlier risk identification, more consistent customer engagement, and higher productivity. Our new LOS and LMS platforms should strengthen these outcomes further. I'm very happy to share with you that the initial pilot on migration has been very encouraging and has got thumbs up from the field teams. Now to the financial outcomes.

Speaker #5: Technology is another area where the conversation at Fusion is changing. In Q1, our AI-enabled platforms handled over 6 million customer interactions, reaching more than 1.1 million customers.

Speaker #5: Inbound calls are now quality monitored using Gen AI, improving consistency, while lowering calling costs. This is translated into earlier risk identification, more consistent customer engagement, and higher productivity.

Speaker #5: Our new LOS and LMS platforms should strengthen these outcomes. Further, I'm very happy to share with you that the initial pilot on migration has been very encouraging and has got thumbs up from the field teams.

Speaker #5: Now to the financial outcomes. GNPA improved from 3.21 to 2.51% and credit cost further declined to 40 crore. In line, with a 2% annualized expectation.

Sanjay Garyali: GNPA improved from 3.21% to 2.51%, and credit cost further declined to INR 40 crore, in line with the 2% annualized expectation. The seventh consecutive quarter of reduction. Reported PAT for Q1 was INR 62 crore and ROA of nearly 3%, again in line towards the 4% end of the year ROA that we plan to achieve. On a like-to-like basis, PBT rose from INR 37 crore in Q4 FY26 to INR 62 crore in Q1 FY27, up approximately 67% sequentially. Our third straight quarter of improving core profitability. There's an important shift underway within these earnings. The first phase of our earning recovery was driven largely by normalizing credit costs. The next phase should increasingly be driven by average AUM growth and operating leverage. We remain focused on reaching the INR 10,000 crore of AUM by the year FY27, calibrated around portfolio quality and broader operating environment. FY26 was about rebuilding Fusion.

Speaker #5: The seventh consecutive quarter of reduction. Reported PAT for Q1 was ₹62 crore and ROA of nearly 3%, again in line towards the 4% end-of-the-year ROA that we planned to achieve.

Speaker #5: On a like-to-like basis, PBT rose from ₹37 crore in Q4 FY26 to ₹62 crore in Q1 FY27, up approximately 67% sequentially. This marks the third straight quarter of improving core profitability.

Speaker #5: There's an important shift underway within these earnings. The first phase of our learning recovery was driven largely by normalizing credit costs. The next phase should increasingly be driven by average AUM growth and operating leverage.

Speaker #5: We remain focused on reaching ₹10,000 crore of AUM by FY27, calibrated around portfolio quality and the broader operating environment. FY26 was about rebuilding Fusion. FY27 is about showing what the rebuilt Fusion can deliver.

Sanjay Garyali: FY27 is about showing what the rebuilt Fusion can deliver. Q1 is an encouraging start. Our focus now is consistent execution through rest of the year. With that, I will hand over to our CFO, Mr. Krishan Gopal, for the financial performance in greater detail.

Speaker #5: Q1 is an encouraging start. Our focus now is consistent execution through the rest of the year. With that, I will hand over to our CFO, Mr. Krishan Gopal, for the financial performance in greater detail.

Speaker #2: Thank you, Sanjay, and good evening, everyone. I am pleased to present our Q1 Financial Performance. This quarter reflects strengthening across profitability margins, asset quality, and capital.

Krishan Gopal: Thank you, Sanjay, and good evening, everyone. I am pleased to present our Q1 financial performance. This quarter reflects strengthening across profitability margins, asset quality, and capital, with disciplined and well-capitalized growth. The improvement in our book is clearly evident in our strong asset quality matrices. Asset quality continues to improve during the quarter. Our gross NPA stood at 2.51% as of 30 June 2026, compared with 3.21% in the previous quarter, while net NPA stood at 0.47%. This improvement was driven by strong collection efficiency, healthy recoveries, and seasoning of a higher quality portfolio. Credit cost declined from INR 56 crore in Q4 2026 to INR 40 crore in Q1 of FY27, marking our seventh consecutive quarter of credit cost reduction. The company has also significantly strengthened its balance sheet over the last few quarters.

Speaker #2: With discipline, and well-capitalized growth. The improvement in our book is clearly evident in our strong asset quality matrices. Asset quality continues to improve during the quarter.

Speaker #2: Our gross NPS today at 2.51% as of June 30, 2026. Compared with 3.21% in the previous quarter, while net NPS today at 0.47%. This improvement was driven by strong collection efficiency, healthy recoveries, and seasoning of a higher quality portfolio.

Speaker #2: Credit cost declined from 56 crore in Q4 26 to 40 crore in Q1 of FY27, marking our seventh consecutive quarter of credit cost reduction.

Speaker #2: The company has also significantly strengthened its balance sheet over the last few quarters. Our focus has been on three key priorities: maintaining a strong liquidity buffer, reducing the cost of funds, and diversifying our funding franchise.

Krishan Gopal: Our focus has been on three key priorities: maintaining a strong liquidity buffer, reducing the cost of funds, and diversifying our funding franchise. These initiatives are now clearly visible into our funding matrices, ALM position, and margin profile, creating a stronger platform for sustainable growth. As of 30 June 2026, we maintained INR 1,880 crore of liquidity. In addition to our on-the-balance sheet liquidity, we have approximately INR 2,300 crore of undrawn sanction facility available for utilization. Further, we have a strong funding pipeline of approximately INR 2,000 crore. Together, these provide us with significant liquidity cushion and hence our funding flexibility and position as well to meet our obligations. Our capital adequacy ratio stood at 36.95%, comfortably above the regulatory requirement. This strong capital position provides us with the sufficient headroom to support our future growth while maintaining a prudent capital structure.

Speaker #2: These initiatives are now clearly visible in our funding matrices, ALM position, and margin profile, creating a stronger platform for sustainable growth. As of June 30, 2026, we maintain ₹1,880 crore of liquidity in addition to our own balance sheet liquidity.

Speaker #2: We have approximately ₹2,300 crore of undrawn sanctioned facilities available for utilization. Further, we have a strong funding pipeline of approximately ₹2,000 crore. Together, these provide us with a significant liquidity cushion, and hence strengthen our funding flexibility and position as well to meet our obligations.

Speaker #2: Our capital adequacy ratio stood at 36.95%, comfortably above the regulatory requirement. This strong capital position provides us with sufficient headroom to support our future growth while maintaining a prudent capital structure.

Speaker #2: I am pleased to report that there is no financial covenant breach as on this quarter end. Our marginal cost of borrowing reduced from 12.6% in Q1 of FY26 to 10.1% in Q1 of FY27.

Krishan Gopal: I am pleased to report that there is no financial covenant breach as on this quarter end. Our marginal cost of borrowing reduced from 12.6% in Q1 of FY26 to 10.1% in Q1 of FY27, representing an improvement of approximately 250 basis points year on year. On a sequential basis as well, marginal cost reduced by 20 basis points from 10.3% in Q4 FY26 to 10.1% in Q1 FY27. While the reported average cost of borrowing stood at 10.6%, the underlying cost trajectory is more encouraging. After adjusting the INR 4 crore MTM impact, or to avoid that INR 4 crore impact, our normalized average borrowing cost was approximately 10.3% in Q1 of FY27, which is current quarter, compared to 10.4% in Q4 FY26, which is just the previous quarter. This MTM impact is expected to be not there next quarter onwards.

Speaker #2: Representing an improvement of approximately 250 basis points year on year. On a sequential basis as well, marginal cost reduced by 20 basis points, from 10.3% in Q4 FY26 to 10.1% in Q1 FY27.

Speaker #2: While the reported average cost of borrowing stood at 10.6%, the underlying cost trajectory is more encouraging. After adjusting for the ₹4 crore MTM impact, or to avoid that ₹4 crore impact, our normalized average borrowing cost was approximately 10.3% in Q1 FY27, which is the current quarter.

Speaker #2: Compared to 10.4 in Q4 FY26, which is just the previous quarter. This MTM impact is expected to be not there next quarter onwards. Our external credit rating remains strong with A- stable from Crystal A stable from Care and A- stable from ICRA.

Krishan Gopal: Our external credit rating remains strong with A minus stable from CRISIL, A stable from CARE, and A minus stable from ICRA, while our PTC program carries ratings of up to AA+ SO. Our funding franchise is also well diversified across private, public sector banks, foreign banks, NBFCs, DFIs, and foreign portfolio investors, and across multiple instruments including term loans, PTCs, direct assignment, ECBs, and NCDs. We have received sanctions of approximately INR 480 crore under Credit Guarantee Fund for Micro Units 2 from both private and public sector banks with a further INR 520 crore currently in the pipeline, primarily from private sector banks. These sanctions under CGS scheme are at an attractive pricing, which is considerably lower than our current marginal cost of borrowing.

Speaker #2: While our PTC program carries ratings of up to AA+ SO, our funding franchise is also well diversified across private and public sector banks, foreign banks, NBFCs, DFIs, and foreign portfolio investors.

Speaker #2: And across multiple instruments, including term loans, PTCs, direct assignment, DCBs, and NCD. NCDs. We have received sanctions of approximately 480 crore under credit guarantee scheme of MFI2 from both private and public sector banks.

Speaker #2: With a further 520 crore currently in the pipeline. Primarily from private sector bank. These sanctions under CGS scheme are at an attractive pricing, which is considerably lower than our current marginal cost of borrowing.

Speaker #2: We feel we can create significant value through this, with disbursement to identified segments where credit cost is expected to be around 100 basis points lower than the median credit cost.

Krishan Gopal: We feel we can create a significant value through this, with disbursement to identified segments where credit cost is expected to be around 100 bps lower than the median credit cost. These sanctions under CGS scheme will further strengthen our funding diversification and increase the share of public sector banks in our overall borrowing profile. Coming to our margins. NIM for Q1 FY27 is at INR 236 crore, that is 11.93%, compared with 10.29% in Q1 FY26, representing an improvement of approximately 160 bps year on year. On a sequential basis, NIM improved by approximately 49 bps points from Q4 FY26. Our pre-provisioning operating profits stood at INR 102 crore in Q1 2027 compared with INR 87 crore in Q1 of FY26. This demonstrates the underlying earning strength of the franchise and reflects the tangible benefits of the operating efficiencies we have systematically built over the last year.

Speaker #2: These sanctions under CGS scheme will further strengthen our funding diversification and increase the share of public sector banks in our overall borrowing profile. Coming to our margins, NIM for Quarter 1 FY27 is at 236 crore.

Speaker #2: That is 11.93% compared with 10.29 in Quarter 1 FY26, representing an improvement of approximately 160 bips year on year. On a sequential basis, NIM improved by approximately 49 bips points from Quarter 4 FY26.

Speaker #2: Our pre-provisioning operating profits stood at 102 crore in Quarter 1 27 compared with 87 crore in Quarter 1 of FY26. This demonstrates the underlying earning strength of the franchise and reflects the tangible benefits of the operating efficiencies we have systematically built over the last year.

Speaker #2: On ECL provisions, we recorded provisions of ₹40 crore during the quarter under the ECL model. We also had a ₹74 crore reversal on account of write-offs.

Krishan Gopal: On ECL provisions, we recorded provisions of INR 40 crore during the quarter under the ECL model. We also had a INR 74 crore reversal on account of write-offs. This translates into provision coverage ratio of 81.5% on Stage 3 assets and 64.5% on Stage 2 assets, supported by a management overlay of INR 19.5 crore. This quarter, we have not released any amount from the management overlay. Last quarter, we have released INR 10 crore from the management overlay. As a result of improving asset quality and better operating efficiencies, profit before tax for the quarter stood at INR 62.4 crore, up 67% sequentially. Return on assets on PBT improved to approximately 3% annualized, while return on equity stood at approximately 10% annualized, reflecting gradual normalization of business performance and improving earnings quality.

Speaker #2: This translates into a provision coverage ratio of 81.5% on Stage 3 assets and 64.5% on Stage 2 assets, supported by a management overlay of ₹19.5 crore.

Speaker #2: This quarter, we have not released any amount from the management overlay. Last quarter, we released ₹10 crore from the management overlay. As a result of improving asset quality and better operating efficiencies, profit before tax for the quarter stood at ₹62.4 crore.

Speaker #2: Up 67% sequentially. Return on assets on PBT improved to approximately 3% annualized, while return on equity stood at approximately 10% annualized, reflecting gradual normalization of business performance and improving earnings quality.

Speaker #2: Overall, with the strengthened leadership team, robust capital backing, and a new book that is performing well, and with seven consecutive quarters of improving asset quality, we begin FY27 with confidence and discipline.

Krishan Gopal: Overall, with the strengthened leadership team, robust capital backing and new book that is performing well, and seven consecutive quarters of improving asset quality, we begin FY27 with confidence and discipline. As we enter FY27, our focus will remain on maintaining financial discipline, enhancing operational efficiency, and further strengthening our funding franchise to support our long-term sustainable growth ambitions. We will continue to pursue growth in a calibrated manner, ensuring that our provisioning and capital buffers remain aligned with the evolving risk environment. With improving asset quality, robust capital adequacy, strong liquidity, and diversified borrowing profile, we are confident of delivering a sustainable and responsible value creation over the long term. Thank you. With that, I would like to open the floor for the Q&A session.

Speaker #2: As we enter FY27, our focus will remain on maintaining financial discipline, enhancing operational efficiency, and further strengthening our funding franchise to support our long-term, sustainable growth ambitions.

Speaker #2: We will continue to pursue growth in a calibrated manner, ensuring that our provisioning and capital buffers remain aligned with the evolving risk environment. With improving asset quality, robust capital adequacy, strong liquidity, and a diversified borrowing profile, we are confident of delivering sustainable and responsible value creation over the long term.

Speaker #2: Thank you. With that, I would like to open the floor for the Q&A session.

Speaker #1: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.

Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Ladies and gentlemen, we will wait for a moment while the questions are assembled. The first question is from the line of Shrirang from CLSA. Please proceed with your question.

Speaker #1: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question.

Speaker #1: Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your questions to one per participant.

Speaker #1: Should you have a follow-up question, please rejoin the queue. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Priyan from CLSA.

Speaker #1: Please proceed with your question.

Speaker #3: Yes. Hi, team. Congrats on the strong numbers. Before my questions, I just have a couple of clarifications, because I didn't hear some things correctly.

[Analyst] (CLSA): Yeah. Hi, team. Congrats on the strong numbers. Before my questions, I just have a couple of clarifications because I didn't hear some things correctly. Firstly, sir, you mentioned, you've reduced management overlay provisions by INR 10 crores. That was last quarter, right? Or again, have we done it in one queue?

Speaker #3: So firstly, sir, you mentioned you've reduced management overlay provisions by 10 crores. That was last quarter, right? Or again, have we done it in one queue?

Speaker #2: Yeah. So, can you just ask all your questions together, then we will answer? Yeah. One is management. Yeah.

Krishan Gopal: Yeah. Sir, can you ask all your questions together, then we will answer?

Sanjay Garyali: Yeah. Sir, can you ask all your questions together, then we will answer?

[Analyst] (CLSA): Yeah.

Krishan Gopal: One is management. Yeah.

Sanjay Garyali: One is management. Yeah.

Speaker #3: Yeah, yeah. So that was one. Second, I didn't catch your comments on branch openings. You said you'll close some, but you'll also open some. If you could reiterate, because we've actually been shutting branches in the last two, three quarters.

[Analyst] (CLSA): Yeah. That was one. Second, I did not catch your comments on branch openings. You said you will close some, but you will also open some. If that you could reiterate, because we have actually been shutting branches in the last two, three quarters. That is there. Secondly, where does NIM really settle over the next three, four quarters given our cost of funds trajectory, plus we took those yield hikes? Lastly, you mentioned that we have changed hard bucket collection. Until last quarter, 30% was done by external agencies. Now it is your own team. Is it the sales guy who is doing it, or do you have a separate collections team for this purpose?

Speaker #3: So that is there. Secondly, where does NIM really settle over the next three, four quarters given our, you know, cost of funds trajectory plus we took the yield hike?

Speaker #3: And lastly, you mentioned that we've changed, you know, hard bucket collections. Until last quarter, 30% was done by external agencies. Now it's your own team.

Speaker #3: So is it the sales guy who's doing it or do you have a separate collections team for this purpose?

Speaker #2: Right. So I suggest we take only your first two questions, because you asked four questions. So first, the management overlay clarification of ₹10 crore—that Krishan will clarify.

Krishan Gopal: Right. I suggest we will take only your first two questions because you asked four questions. First, the management overlay clarification of INR 10 crore that Krishan will clarify.

Sanjay Garyali: Right. I suggest we will take only your first two questions because you asked four questions. First, the management overlay clarification of INR 10 crore that Krishan will clarify.

Speaker #3: Okay.

[Analyst] (CLSA): Okay.

Speaker #2: So, regarding the management overlay this quarter, Q1, we have not released any amount. So, in the ₹62 crore profit, there is no management overlay release. Now, coming to the last quarter, last quarter we released ₹10 crore of management overlay in the P&L.

Krishan Gopal: Management overlay this quarter, Q1, we have not released any amount. In the INR 62 crore profit, there is no management overlay release. Coming to the last quarter. Last quarter, we released INR 10 crore of management overlay in the P&L. That is the factual position. Yeah. On the branch opening and shutting, if you look at, we have clarified in the past also that there is a certain amount of branches which are present in markets where the headroom to grow is not there. These are all branches which are performing below par and lesser headroom. Like I said, there are between about close to 100 branches which we will shut down between now and Q3.

Speaker #2: So that's the factual position. Yeah. And on the branch opening and shutting, see, if you look at it, we have clarified in the past also that there are a certain number of branches which are present in markets where the headroom to grow is not there.

Sanjay Garyali: Yeah. On the branch opening and shutting, if you look at, we have clarified in the past also that there is a certain amount of branches which are present in markets where the headroom to grow is not there. These are all branches which are performing below par and lesser headroom. Like I said, there are between about close to 100 branches which we will shut down between now and Q3.

Speaker #2: And that is the so these are all branches which are performing a below par and lesser headroom. So like I said, there are between about close to 100 branches which we will shut down between now and Q3.

Speaker #2: And there are about 50 to 60 new branches that we will open, so net, we would be about 40 to 50 branches down.

Sanjay Garyali: There are about 50 to 60 new branches that we will open. Net, we would be about 40 to 50 branches down.

Speaker #3: Understood. Understood. And on the NIM question—

[Analyst] (CLSA): Understood. On the NIM question.

Speaker #2: And if you also look at it, if you look at it more from, let's say, an AUM perspective, we have given an AUM target of ₹10,000 crore this year.

Sanjay Garyali: If you also look at it, if you look at more from, let us say, an AUM perspective, we have given an AUM target of INR 10,000 crore this year, and we are saying we will grow at about 20% to 25% CAGR. For INR 12,000 crore of AUM between MFI and MSME, technically, we do not require more than 1,350 to 1,400 branches. There is no point having more than that right now because you understand that both MFI and MSME branch takes just about one month. MSME takes about one month to set up, MFI takes about 15 days to set up.

Speaker #2: And we are saying we will grow at about 20–25% CAGR. So, for ₹12,000 crore of AUM between MFI and MSME, technically, we do not require more than 1,350–1,400 branches.

Speaker #2: So there is no point having more than that right now because we you understand that both MFI and MSME branch takes just about one month.

Speaker #2: MSME takes about one month to set up. MFI takes about 15 days to set up.

Speaker #3: Understood. Understood. If you could also into the NIM.

[Analyst] (CLSA): Understood. Okay.

Sanjay Garyali: Yes.

[Analyst] (CLSA): If you could also take the.

Sanjay Garyali: And my request is for the other questions, if you can come back in the queue.

Speaker #2: This is for the other questions if you can come back in the queue.

Speaker #3: Okay. Sure. I'll come back. Thanks.

[Analyst] (CLSA): Okay, sure. I will come back. Thanks.

Speaker #1: Thank you. The next question is from the line of Rajiv Mehta from Yes Securities. Please proceed with your question.

Operator: Thank you. The next question is from the line of Rajiv Mehta of Yes Securities. Please proceed with your question.

Speaker #3: Yeah. Hi, good evening. Congratulations on very good numbers. So, my first question is on the AUM growth target of ₹10,000 crore. So, now again, in the context of the approval rate—when you look at MFI, the approval rates have, in fact, come down in this quarter.

Rajiv Mehta: Yeah. Hi, good evening. Congratulations on very good numbers. My first question is on the AUM growth target of INR 10,000 crore. Now, again, in the context of the approval rate, when you look at in MFI, the approval rates have in fact come down in this quarter. It could be seasonal also, and it could also be a function of maybe some sort of leverage again building back in the industry. In that sense, a lot of heavy lifting of growth will have to be done by MFI in this year because MSME will scale up slowly and individual loans you will be launching later. To do the heavy lifting of growth in the current year through MFI, with current level of approval rates, how would that be possible?

Speaker #3: It could be seasonal also, and it could also be a function of maybe some sort of leverage again building back in the industry. So in that sense, a lot of the heavy lifting of growth will have to be done by MFI this year, because MSME will scale up slowly and individual loans will be launching later.

Speaker #3: So to do this heavy lifting of growth in the current year through MFI, with current level of approval rates, how would that be, you know, possible?

Speaker #3: Would you do more sourcing, or do you think that the approval rates will, you know, move up from where they are?

Rajiv Mehta: Would you do more sourcing or would you think that the approval rates will itself begin to move up from where they are?

Speaker #2: Right. Any other question, Rajiv, or this is?

Sanjay Garyali: Right. Any other question, Rajiv? Or this is

Speaker #3: Yeah. And you also spoke about, you know, offering more, you know, differentiated products—additional products—to select identified MFI customers, and you said that a few of them you have already launched and then some you'll be launching in the next fortnight.

Rajiv Mehta: Yeah. You also spoke about offering more differentiated products, additional products to select identified MFI customer. You said that few of them you have already launched, and some you will be launching in the next fortnight. Can you also slightly elaborate on it? Yeah.

Speaker #3: So could you also, you know, elaborate on it slightly? Yeah.

Speaker #2: Absolutely. So I'll take your first question, which is: let's say for ₹10,000 crore of AUM, the disbursement that we require is—technically—about 44 to 45 percent of the disbursement happens in H1, and about 55 percent happens in H2.

Sanjay Garyali: Absolutely. I will take your first question, which is, let's say, for INR 10,000 crore of AUM, the disbursement that we require is technically about 44% to 45% of the disbursement happens in H1, and about 55% happens in H2, let's say, if we divide it like this. Now, if you recall, there is a guardrail that we had built when this West Asia crisis and all the fuel concerns were there. We had introduced a guardrail, Fusion Plus 2, saying that new to Fusion, we will not do two lenders other than Fusion. Essentially, because of that guardrail, there was a drop of about 3% to 4% on the approval rate. These were customers, this was specifically an area that we wanted to avoid because there was no clarity how the West Asia crisis would phase out.

Speaker #2: Let's say if we divide it like this. Now, if you recall, there's a guardrail that we had built when this West Asia crisis and all the fuel concerns were there.

Speaker #2: We had introduced a guardrail, a Fusion plus two, saying that new to Fusion, we will not do two lenders other than Fusion. So, because of that—essentially because of that guardrail—there was a drop of about three to four percent on the approval rate.

Speaker #2: And these were customers this was specifically an area that we wanted to avoid because there was no clarity how the West Asia crisis would phase out.

Speaker #2: But I think we've been it's are the collections efficiencies has has been exceptional and we have looked at how the fusion plus two specifically the new customers that we had acquired over the last six to nine months have there been any deviation during the last four months while this crisis was going on.

Sanjay Garyali: I think the collections efficiencies have been exceptional, and we have looked at how the Fusion Plus 2, specifically the new customers that we had acquired over the last 6 to 9 months, have there been any deviation during the last 4 months while this crisis was going on? It has been pristine and impeccable. What we have done is that in all our category A branches, that is about 80% of the branches, we have gone back to Fusion Plus 2 and only on lower category branches we are continuing to keep this guardrail. That is why you saw the approval rates drop a little. However, there is a pre-approved base that we have looked at, which is the customers which we have lost and in the last 15 days, we have been experimenting that what is the propensity of onboarding of these customers.

Speaker #2: And the it's been pristine and impeccable. And so what we have done is that in all our category A branches that's about 80 percent of the branches we have gone back to fusion plus two and only on lower category branches we are continuing to keep this guardrail.

Speaker #2: So that is why you saw the approval rates drop a little. However, there's a pre-approved base that we have looked at, which is the customers that we have lost.

Speaker #2: And in the last 15 days, we have been experimenting to see what is the propensity for onboarding these customers. The first week of August has been very encouraging.

Sanjay Garyali: The first 1 week of August has been very encouraging. Our problem was less on the new customers. If you see in the last 2 quarters, the new to Fusion has been progressively increasing as a percentage. We were, what, 3 quarters back about 25%. We were at 37%. Just to give you a number, if we segregate June from Q1, June was close to 39% and while we are talking July was 42%. New customers is progressively increasing. What we were experimenting with was that on the existing customer segment, is there anything else that we need to do? I think in the last 15, 20 days, there are partially what you asked that the new products or the differentiation that you are doing.

Speaker #2: And our problem was less on the new customers. If you see in the last two quarters, the new to fusion has been progressively increasing as a percentage.

Speaker #2: So we were what three quarters back about 25 percent. We were at 37 percent. Just to give you a number, if we segregate June from quarter one, June was close to 39 percent and while we are talking July was 42 percent.

Speaker #2: So new customers is progressively increasing what we were experimenting with was that on the existing customer segment is there anything else that we need to do.

Speaker #2: I think in the last 15, 20 days, there are like partially what you asked that the new products or the differentiation that you are doing.

Speaker #2: So the differentiation is basis the categorization of branches. The ticket size we were offering to the customer and the whether there is a credit person in that branch.

Sanjay Garyali: The differentiation is basis the categorization of branches, the ticket size we were offering to the customer and whether there is a credit person in that branch. We have told you that there are about 250 branches where we have credit and these are all large branches. Between these three, we are already in the first 7 days of August seeing the run rates climb up on the existing customers. We are pretty confident that in terms of what we are expecting in H1, that about 45% of the disbursement that is required to reach to INR 10,000, we do not need to rely on the individual loan, and you are absolutely right, individual loan will start giving us results only in Q3 onwards, and that too, we do not plan to do INR 100 crores in a month.

Speaker #2: So, we had told you that there are about 250 branches where we have credit, and these are all large branches. So, between these three, we are already, in the first seven days of August, seeing the run rates climb up on the existing customers.

Speaker #2: So, we are pretty confident that, in terms of what we are expecting in H1, about 45 percent of the disbursement that is required to reach 10,000, we don't need to rely on the individual. And you're absolutely right.

Speaker #2: Individual loan will start giving us results only in two, three onwards and that too. We don't plan to do 100 crores in a month.

Speaker #2: So we are fairly on track on the AOP on both Q1 and the 40 days that have gone in Q2 so far.

Sanjay Garyali: We are fairly on track on the AOP on both Q1 and the 40 days that have gone in Q2 so far.

Rajiv Mehta: Mm-hmm. Okay. On the collection, I mean, in these recent two months of July and August, the collection efficiency that you have disclosed for Q1, is it holding up for the current bucket? Is it holding up for the bucket 1, 2, 3 as well, in terms of lesser flows between those buckets?

Speaker #3: Okay. And on the collection, I mean in this recent two months of July and August, the collection efficiency that you have disclosed for Q1, is it holding up for the current bucket?

Speaker #3: Is it holding up for the, you know, bucket one, two, three as well, in terms of lesser floors between those buckets?

Speaker #2: Absolutely. Absolutely, Rajiv. So and the confidence is coming from there. So the all the confidence that I'm giving you on scale up on existing customers is coming because collection efficiency continues to hold very strong.

Sanjay Garyali: Absolutely, Rajiv. The confidence is coming from there. All the confidence that I am giving you on scale-up on existing customers is coming because collection efficiency continues to hold very strong. It continues to be upwards of 99.7%, and there is no state where there is any impact we see anywhere across any of our five, six large states where we have a higher concentration.

Speaker #2: So it continues to be upwards of 99.7 percent, and there is no state where there is any impact we see anywhere across any of our five or six large states where we have higher concentration.

Rajiv Mehta: Mm-hmm. Okay. Thank you.

Speaker #3: Okay. Thank you. Yeah.

Sanjay Garyali: Yeah.

Speaker #1: Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your questions to two questions per participant.

Operator: Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your questions to two questions per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Karthik Srinivas from Unifi Mutual Fund. Please proceed with your question.

Speaker #1: Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Carpet Srinivas from Unifi Mutual Fund.

Speaker #1: Please proceed with your question.

Karthik Srinivas: Hi, Sunil. Thanks for the opportunity and congratulations on the good set of numbers. I just had two questions. I am just referring to slide number 22. Credit cost is about INR 40 crores. It says credit cost on other financial assets. Could you please elaborate on what does that other financial assets mean? I just had a question on the bad debt recovery. In FY26, we had about INR 54 crores for the entire year, and in Q1, we had a strong start of about INR 21 crores. Are we seeing this trajectory improving going forward or how is that panning out? This was my first question. I will just put my other question also. At an industry level, every player is moving towards targeting the very high-quality borrowers because all the other MFIs are moving into that less than 2 MFIs, 3 MFIs borrowing.

Speaker #3: Hi sir. Thanks for the opportunity, and congratulations on the good set of numbers. I just had two questions and, just referring to slide number 22, credit cost is about ₹40 crores.

Speaker #3: It says credit cost on other financial assets. So I'm not please elaborate on what what does that other financial assets mean. That is I mean and I just had a question on the bad debt recovery.

Speaker #3: So say NEFI 26 we had about 54 crores for the entire year and in Q1 we had had a strong start of about 21 crores.

Speaker #3: So are we seeing this trajectory improving going forward or how is that finding out? So this was my first question and I just put my other question also.

Speaker #3: See, sir, on an industry at an industry level, every player is moving towards targeting the very high quality borrowers. Because all the other MMFIs are moving into that less than two two MFIs, three MFIs borrowing.

Speaker #3: So how are we able to reach out to new customers? Are they are you trying to reach out to a large larger set of customers or how do we expect the growth to happen from there from where does the growth come from?

Karthik Srinivas: How are we able to reach out to new customers? Are you trying to reach out to a larger set of customers or how do we expect the growth to happen from there? Where does the growth come from? That was my second question.

Speaker #3: So that was my question.

Speaker #2: Right. So I'll let Krishan take the question on credit cost and then I'll explain collection expectation and what are we targeting as customer segment.

Sanjay Garyali: Right. I will let Krishan take the question on credit cost, and then I will explain collection expectation and what are we targeting as customer segment.

Speaker #4: So on the credit cost, the other financial instruments, et cetera, so there are certain receivables like the insurance receivable in case of death cases.

Krishan Gopal: On the credit cost, the other financial instruments, et cetera. There are certain receivables, like the insurance receivable in case of death cases. We have strengthened the provision there. That is a small line item apart from the credit cost, which is lying in the other credit cost.

Speaker #4: So we have strengthened the provision there. So that is a small line item apart from the credit cost which is lying in the other credit cost.

Speaker #4: Yeah. So this is done you can.

Sanjay Garyali: Yeah.

Krishan Gopal: So yeah, this is done.

Speaker #2: Yeah. Okay. So on the collections, there are so like I explained, we have moved from external agencies to completely in-house. And we are seeing sustained recovery there.

Sanjay Garyali: Yeah. Okay. On the collections, like I explained, we have moved from external agencies to completely in-house, and we are seeing sustained recovery there. There are two models that we are building. One is the warm body who are actually going and connecting. But the challenge that we were facing was that how do we reach out to, let's say, the entire write-off book where we are recovering from? And having people on the ground for every customer at every branch is not a viable opportunity. Right now there are four partners that we have engaged. These are all AI partners. And we all understand that because there are linguistic issues, it was not easy to work with these partners and set up these voice bots. But I think I can tell you that now we have 95% capability to manage this language skill.

Speaker #2: So there are two things, two models that we are building. One like is the warm body who are actually going and connecting. But the challenge that we were facing was that how do we reach out to let's say the entire right of book where we are recovering from.

Speaker #2: And having people on the ground for every customer or every branch is not a viable option. So right now, we have four partners that we have engaged.

Speaker #2: These are all AI partners and we all understand that because there are linguistic issues it was not easy to work with these partners and set up these voice bots but I think I can tell you that now we have 95 percent capability to manage this language skill.

Speaker #2: And we are using AI to reach out to the customer to understand that whether we can then through a warm body do the entire collection.

Sanjay Garyali: And we are using AI to reach out to the customer to understand that whether we can then through a warm body, do the entire collection. We feel that there is an opportunity of about INR 600 crores. If we take a rough settlement of about even 30%, that's about INR 180 crores to be done. If you, let's say, take 15 to 18 months, we are talking about INR 10 crores every month. Right now we are still averaging about INR 7 crores. So I think there will be more use of technology and data around this. And with same set of people, you will continue to see higher delivery and sustained growth on write back from there. Two, on the industry that you are mentioning, there are two ways to look at it. One, even if the demand is static, the supply is shrinking.

Speaker #2: We feel that there is an opportunity of about ₹600 crore. If we take a rough settlement of even 30 percent, that's about ₹180 crore to be done.

Speaker #2: If you let's say take 15 to 18 months we are talking about 10 crores every month. So right now we are still averaging about 7 crores.

Speaker #2: So I think there will be more use of technology and data around this, and with the same set of people. We will—you will continue to see higher delivery and sustained growth right back from there.

Speaker #2: On the industry that you are mentioning, see, there are two ways to look at it. One, if you see, while the demand—even if the demand is static—the supply is shrinking.

Speaker #2: There are selective players in the market who are able to offer who have the capital who have scaled up their operations who have built up the right infrastructure.

Sanjay Garyali: There are selective players in the market who are able to offer, who have the capital, who have scaled up their operations, who have built up the right infrastructure. So it is not that everybody can go out and offer loans with clear credit guardrails that are present right now. So within the MFI segment also there is a huge demand. If you look at our bifurcation, the challenge that we have been able to do a decent job on new customer addition, which means that the new disbursements that we are doing, continuously the new customers are increasing. And I gave you the number for June, which is close to 40%. In July it is 42%. So this is continuously increasing. And, I think it is also because the capital is scarce and it is with selected players. I think that's also a role to play.

Speaker #2: So it is not that everybody can go out and offer loans with clear credit guardrails that are present right now. So within the MFI segment also there is a huge demand.

Speaker #2: If you look at our bifurcation the challenge that we are we have been able to do a decent job on new customer addition. Which means that the new disbursements that we are doing continuously the new customers are increasing.

Speaker #2: And I gave you the number for June which is close to 40 percent. In July it is 42 percent. So this is continuously increasing.

Speaker #2: And I think it is also because the capital is scarce and it is with selected players. I think that's also a role to play.

Sanjay Garyali: Where do we see the other growth coming from? Is that within the MFI sector, there are high performing customers or customers with very low leverage. The challenge was that income assessment was a problem all these years. I think the confidence that we have got through the PQM team, which we are servicing 250 branches right now, that is giving us very healthy signals so that we will continue to scale up. You will see that eventually we will have two businesses. One is MSME, which is shopkeepers and retailers in tier 3 and tier 4 markets. These are non-rural businesses, semi-urban, tier 3, tier 4. The other is the MFI, where, what we are talking about right now is MFI JLG.

Speaker #2: On the differential on the where do we see the other growth coming from is that within the MFI sector there are high performing customers or customers with very low leverage.

Speaker #2: The challenge was that income assessment has been a problem all these years. But I think the confidence that we have gotten through the PQM team, which we are servicing at 250 branches right now, is giving us very healthy signals.

Speaker #2: So that we will continue to scale up. And we will you will see that eventually we will have two businesses. One is MSME which is shopkeepers and retailers in Tier 3 and Tier 4 markets.

Speaker #2: These are non-rural businesses. Semi-urban. Tier 3, Tier 4. The other is the MFI where while we what we are talking about right now is MFI, JLG, MFI, JLG, let's say lower leverage customers.

Sanjay Garyali: MFI JLG, let's say, lower leverage customers, then we will also subsequently move into, we have launched the individual loan product. Not right now, but towards the end of the year or next early year, we will also look at a secured offering for these customers. Like I'm saying, the credit will be differentiated. The moment the ticket size goes up beyond INR 90,000, the credit will come in very strong. That will be a constant factor across all the growth other than pure JLG. I think the growth number that we are talking about what we are saying a 20% to 25% CAGR growth. I don't think that's a challenge at all.

Speaker #2: Then we will also subsequently move into we have launched the individual loan product. And not right now but towards end of the year or next earlier we will also look at a secured offering for these customers.

Speaker #2: But like I'm saying the credit will be differentiated. The moment the ticket size goes up beyond 90,000 the credit will come in very strong.

Speaker #2: So that will be a constant factor across all the growth other than Pure JLG. And I think we the growth number that we are talking about what we are saying a 20 25 percent cases growth.

Speaker #2: I don't think that's a challenge at all. While for this year, we have taken a slightly higher growth target because of the lower base.

Sanjay Garyali: While for this year we have taken a little higher growth target because of the lower base, there is confidence in our strategy and how we are going that 20% to 25% CAGR growth, it is on the cards.

Speaker #2: But there is confidence in our strategy and how we are going. That 20 to 25 percent cases growth it is on the cards.

Speaker #3: Thank you.

[Analyst]: Thank you.

Karthik Srinivas: Thank you.

Speaker #1: Thank you. Ladies and gentlemen anyone who wishes to ask a question please press star and one at this time. I repeat to ask a question please press star and one now.

Operator: Thank you. Ladies and gentlemen, anyone who wishes to ask a question, please press star and one at this time. I repeat, to ask a question, please press star and one now. The next question is from the line of Nitin Goel from SL Capital. Please proceed with your question.

Speaker #1: The next question is from the line of Nidhi Senwarri from PL Capital. Please proceed with your question.

Nitin Goel: Hi. Thank you for the opportunity and congratulations team for a great execution across all the parameters. My first question is around liquidity. We have around INR 1,900 crores of liquidity with capital adequacy upwards of 36% to 37%. When can we expect this excess liquidity drag to go away, sir? This is also important especially given that we have seen the cycle bottoming out across the board, we have seen collection efficiencies improving, and also now that we have a fair bit of idea in terms of monsoon and Western Asia conflict, when can we expect this drag to normalize? That is one. The second one is on the MSME business.

[Analyst]: Hi. Thank you for the opportunity and congratulations team for a great execution across all the parameters. My first question is around liquidity. We have around INR 1,900 crores of liquidity with capital adequacy upwards of 36% to 37%. When can we expect this excess liquidity drag to go away, sir? This is also important especially given that we have seen the cycle bottoming out across the board, we have seen collection efficiencies improving, and also now that we have a fair bit of idea in terms of monsoon and Western Asia conflict, when can we expect this drag to normalize? That is one. The second one is on the MSME business.

Speaker #3: Hi. Thank you for the opportunity and congratulations team for a great execution across all the parameters. My first question is around liquidity. So we have around 1900 crores of liquidity with capital adequacy upwards of 36 37 percent.

Speaker #3: When can we expect this excess liquidity drag you know to go away soon? And this is also important especially given that you know we have seen the cycle bottoming out across the board.

Speaker #3: We have seen collection efficiencies improving. And also now that we have a fair bit of idea in terms of monsoon and western Asia conflict when can we expect this drag to normalize?

Speaker #3: So that's one. The second one is on the MSME business. Just broadly how do we since the MFI business has now you know settled down what's the strategy to you know increase or improve the the size of the MSME business and how do we see that over the next three to four years in comparison to the MFI business?

Nitin Goel: Just broadly, since the MFI business has now settled down, what is the strategy to increase or improve the size of the MSME business and how do we see that over the next three to four years, in comparison to the MFI business? What will be the total sort of number in terms of the size of both the businesses in, say, FY29, FY30?

[Analyst]: Just broadly, since the MFI business has now settled down, what is the strategy to increase or improve the size of the MSME business and how do we see that over the next three to four years, in comparison to the MFI business? What will be the total sort of number in terms of the size of both the businesses in, say, FY29, FY30?

Speaker #3: What will be the total sort of number in terms of the size of both the businesses in, say, FY29 or FY30?

Speaker #4: Okay. So Krishan will take the first one on liquidity. Excess liquidity. So on the liquidity front we have you're right we have capped slightly higher liquidity during quarter one.

Sanjay Garyali: Okay. Krishan will take the first one on liquidity. Excess liquidity and-

Krishan Gopal: Yeah.

Sanjay Garyali: Supply.

Krishan Gopal: On the liquidity front, you are right, we have kept slightly higher liquidity during Q1. However, after these geopolitical things and positivity from there, we have already addressed this. We have not borrowed broadly anything in July, and we have brought it INR 1,880 to about INR 1,400 crore. Our plan is to

Speaker #4: However, after these geopolitical things and the positivity from there, we have already addressed this. We have not broadly borrowed anything in the month of July, and we have brought it down from ₹1,880 crore to about ₹1,400 crore.

Speaker #4: And our plan is—to July, our total borrowing was less than ₹50 crore. Less than ₹50 crore, yeah. So it automatically comes down to around ₹1,400 crore.

Sanjay Garyali: July our total borrowing was less than INR 50 crores.

Krishan Gopal: Less than INR 50 crores.

Sanjay Garyali: Yeah.

Krishan Gopal: So-

Sanjay Garyali: It automatically comes down to around INR 1,400 crores.

Krishan Gopal: Fourteen hundred crores. This is the level which we want to close Q2. This is in line with our internal policy to keep two months' disbursements liquidity, which comes to about INR 1,400, INR 1,450 crores. This issue is already addressed, and that was in response to the West Asia crisis.

Speaker #4: 1400 crores. And this is the level we which we want to close the Q2. And this is in line with our internal policy to keep two months disbursements liquidity which comes to about 1400 1450 crores.

Speaker #4: So this issue is already addressed. And that was in response to the West Asia crisis.

Speaker #5: On the MSME business that you asked about, we are currently at about ₹800 crores of book, and we're roughly doing about ₹50 crores a month.

Sanjay Garyali: On the MSME business that you asked. We are currently at about INR 800 crores of book, and we are roughly doing about INR 50 crores a month. Ticket size is about INR 7.5 to 8 lakhs. The important thing is that, last six months, the collection efficiency has been upwards of 99.25%, 99.3%, which gives us the confidence that the strategy that we have been using on credit, which is what we have been saying that we do not want to be taking cash flow calls. We are better off giving a little higher LTV. I think that has paid off, and we are getting that confidence. There are two ways. One, within our existing 90 branches, there are about 25, 30 branches where you will see productivity significantly going up. There are some specific state differentiations that we have introduced.

Speaker #5: So ticket size is about seven and a half to eight lakhs. The important thing is that last six months the collection efficiency has been upwards of 99.25 99.3 percent which gives us the confidence that the strategy that we have been using on credit which is what we've been saying that we don't want to be taking cash flow calls we are better off giving a little higher LTV.

Speaker #5: I think that is paid off and we are getting that confidence. So there are two ways. One there we have within our existing 90 branches there are about 25 30 branches.

Speaker #5: Where you will see productivity significantly going up. There are some specific state differentiations that we have introduced. The second thing is that I explained in my call that there are 200 branches of MFI where we'll be leveraging the MFI real estate for acquiring MSME business.

Sanjay Garyali: The second thing is that I explained in my call that there are 200 branches of MFI, where we will be leveraging the MFI real estate for acquiring MSME business. These branches are in MSME catchments, so we will not be going to rural markets. It will be semi-urban, tier 3, tier 4, shopkeepers, retail outlets. The real estate is in MSME catchment, and these will operate as hub and spoke to the main MSME branch. To start with, 50 such branches are being taken up immediately, and we will keep adding. But 200 branches we have identified across North and Central, where we will be scaling on MSME.

Speaker #5: Now these branches are in MSME catchments. So we will not be going to rural markets. It will be semi-urban Tier 3 Tier 4 shopkeepers retail outlets.

Speaker #5: The branches in the real estate are in the MSME catchment. These will operate as a hub and spoke to the main MSME branch. To start with, 50 such branches are being taken up immediately.

Speaker #5: And we will keep adding, but 200 branches we have identified across North and Central where we will be scaling on MSME. So the way you should look at it is 90 branches of ours which are completely dedicated to MSME.

Sanjay Garyali: The way you should look at it is 90 branches of ours, which are completely dedicated MSME, and another 200 branches for which we do not require any high level of OpEx, which is our existing real estate, just we will operate as a hub and spoke, one dedicated person in each of those 200 branches. You will see this scaling up, and our view is that we want to eventually take it to 15% next year, and then 20% in the next two years. MSME, we are doing multiple things. But the clarity is whatever we do, the clarity is that no deviation on cash flows. We are creating a right to win in each of these markets. MSME, you will see initially 15% and then 20%.

Speaker #5: And another 200 branches for which we don't require any high level of opex, which is our existing real estate. We'll just operate as a hub and spoke.

Speaker #5: One dedicated person in each of those 200 branches. So you will see this scaling up and our view is that we want to eventually take it to 15 percent next year and then 20 percent in the next two years.

Speaker #5: So MSME we are doing multiple things. But clear but the clarity is whatever we do the clarity is that no deviation on cash flows.

Speaker #5: And we are creating a right to win in each of these markets. So, in MSME, you will see initially 15 and then 20 percent.

Speaker #3: Got it. Thank you sir and all the best.

Nitin Goel: Got it. Thank you, sir, and all the best.

[Analyst]: Got it. Thank you, sir, and all the best.

Speaker #1: Thank you. The next question is from the line of Akhilesh from North Star. Please proceed with your question.

Operator: Thank you. The next question is from the line of Akhilesh from North Star. Please proceed with your question.

Speaker #3: Yeah. Hi, thanks for the opportunity. Sir, can you just confirm what is the current value of deferred tax assets on our books and whether any recognition will happen only in Q4? And the second question would be: what's your view on credit guarantee schemes like CGFMU, and how do you think about that? Do they form a part of your business plan going ahead?

[Analyst] (North Star): Yeah. Hi. Thanks for the opportunity. Sir, can you just confirm what is the current value of deferred tax assets on our book, and whether any recognition will happen only in Q4? The second question would be, what is your view on credit guarantee schemes like CGFMU and how do you think about that? Would they form a part of your business plan going ahead?

Speaker #4: You will take that detail. So on the DTA front we are unrecognized DTA amount is around 290 crore. And now the plan is as and when the profit accrues we will utilize that rather than utilizing in one shot like we did in the last quarter.

Sanjay Garyali: You will take that, Vishal. On the DTA front, our unrecognized DTA amount is around INR 290 crore. The plan is, as and when the profit accrues, we will utilize that rather than utilizing in one shot like we did in the last quarter. Technically, this amount is sufficient for next two years tax outflow. We expect PBT to be equal to PAT for about next 24, 26 months.

Sanjay Garyali: You will take that, Vishal.

Krishan Gopal: On the DTA front, our unrecognized DTA amount is around INR 290 crore. The plan is, as and when the profit accrues, we will utilize that rather than utilizing in one shot like we did in the last quarter. Technically, this amount is sufficient for next two years tax outflow. We expect PBT to be equal to PAT for about next 24, 26 months.

Speaker #4: So technically this amount is sufficient for next two years tax outflow. So we expect PBT to be equal to PAT for about next 24 26 months.

Speaker #3: Yeah.

[Analyst] (North Star): Yeah.

Speaker #5: So on the. So on the credit guarantee scheme I'm assuming you're referring to the credit guarantee scheme for the borrower. And not the credit guarantee scheme that has been introduced for the banks.

Sanjay Garyali: On the credit guarantee scheme, I am assuming you are referring to the Credit Guarantee Fund for Micro Units for the borrower and not the credit guarantee scheme that has been introduced for the banks.

Speaker #3: Correct sir. Yeah.

[Analyst] (North Star): Correct, sir. Yeah.

Speaker #5: Right. So on the credit guarantee scheme for borrowers we had not registered so far we plan to register we have initiated all the documentation so there are some formalities that we need to complete but there are two or three markets we have identified where it we don't know whether over the cycle it's viable but we also want to pilot an experiment so there are two or three markets where we will be initiating this by end of this quarter most probably.

Sanjay Garyali: Right. On the credit guarantee scheme for borrowers, we had not registered so far. We plan to register. We have initiated all the documentation, so there are some formalities that we need to complete. But there are two or three markets we have identified, where we do not know whether over the cycle it is viable, but we also want to pilot an experiment. So there are two or three markets where we will be initiating this, by end of this quarter, most probably.

Speaker #3: Sir can you quantify how much percentage of your book you might pilot like is it going to be 5 percent less than that.

[Analyst] (North Star): Sir, can you quantify how much percentage of your book you might pilot? Is it going to be 5%, less than that?

Speaker #5: Yeah it will be less than 5 percent because this is this will be more on the fresh disbursements.

Sanjay Garyali: Yeah, it will be less than 5%, because this will be more on the fresh disbursements.

Speaker #3: Right. Okay. Thank you.

[Analyst] (North Star): Right. Okay. Thank you.

Speaker #1: Thank you. The next question is from the line of Vishal an individual investor. Please proceed with your question.

Operator: Thank you. The next question is from the line of Vishal, an individual investor. Please proceed with your question.

Speaker #5: Hello, yeah. Call is missing, sir. It's for your results, sir. I have only one question. The monsoon is coming, and everyone is talking about aluminum, and I think our customers are farmers.

[Company Representative] (CLSA): Hello. Yeah. Congratulations, sir. Thanks for your results. Sir, I have only one question. The monsoon is coming and everyone is talking about El Niño, and I think our customers are based there on the farmer. Based on that, your guidance for INR 10,000 crore AUM is still intact?

[Shareholder]: Hello. Yeah. Congratulations, sir. Thanks for your results. Sir, I have only one question. The monsoon is coming and everyone is talking about El Niño, and I think our customers are based there on the farmer. Based on that, your guidance for INR 10,000 crore AUM is still intact?

Speaker #5: So based on that your guidance for 10,000 crore AUM is still intact?

Speaker #4: Okay. Vishal any other question then we will answer.

Sanjay Garyali: Okay. Vishal, any other question? Then we will answer this.

[Company Representative] (CLSA): No, sir, I have only one question.

[Shareholder]: No, sir, I have only one question.

Speaker #5: No sir. I have only one question. I have only one question.

Speaker #4: Sure Vishal. Yeah. Thank you. So Vishal I think like we we've been talking about this I completely agree it is not that microfinance sector is completely insulated from either El Nino or monsoon or any of these issues.

Sanjay Garyali: Sure, Vishal. Yeah. Thank you. So Vishal, I think, like we've been talking about this, I completely agree. It is not that microfinance sector is completely insulated from either El Niño or monsoon or any of these issues. But we strongly believe that every segment has a prime, subprime, and a mid-prime. I think the subprime, let's say, what every time gets impacted wherever there is a headwind, whether it is El Niño or it is floods or any other, is the subprime segment within that overall, let's say, segment. Now, if you look at MFI, same is the challenge. There is a prime segment, there is a mid segment within MFI also. It is not all customers are the same. So what has happened in the deleveraging cycle in the last one year is that the subprime segment has exited the formal MFI sector.

Speaker #4: But I we strongly believe that every segment has a prime subprime and a mid prime. I think the subprime let's say what every time gets impacted wherever there wherever there is a headwind whether it is El Nino or it is floods or any other is the subprime segment within that overall let's say segment.

Speaker #4: Now, if you look at MFI, the same is the challenge. There is a prime segment, there is a mid segment within MFI also. It is not that all customers are the same.

Speaker #4: So, what has happened in the deleveraging cycle in the last one year is that the subprime segment has exited the formal MFI sector.

Speaker #4: And we have been, in fact, more careful that while we are onboarding customers, our guardrails have been tight enough that while other customers we will give much more, the customers which are at the bottom we will stay out of.

Sanjay Garyali: And we have been, in fact, even more careful that while we are onboarding customers, our guardrails have been tight enough that while other customers we will give much more. The customers which are at the bottom, we will stay out of. So I think this has helped us, and that's why you see state level, we have given you collection efficiencies. There have been states which are rain-fed and where there have been heat and delayed monsoons. And you see clearly that collection efficiency continues to hold at 99.7%, 99.8%. And while I'm talking even in July and first 7 days of August that have gone by, the collection efficiencies have held very strong. Now, we are very confident that as long as the customer assessment is done right, which is either through PQMs or through the guardrails that we have developed.

Speaker #4: So, I think this has helped us, and that's why you see, at the state level, we have given you collection efficiencies. There have been states which are rain-fed and where there have been heat and delayed monsoons, and you see clearly that collection efficiency continues to hold at 99.7%, 99.8%. While I'm talking, even in July and the first seven days of August that have gone by, the collection efficiencies are held very strong.

Speaker #4: Now so we are very confident that as long as the customer assessment is done right which is what which is either through PQMs or through the guardrails that we have developed the growth targets that we have taken of 10,000 crore that is not a challenge at all.

Sanjay Garyali: The growth targets that we have taken of INR 10,000 crore, that is not a challenge at all. We continue to be absolutely confident on the same.

Speaker #4: So we are we continue to be absolutely confident on the same.

Speaker #5: Okay. Thank you sir. And sir GNPA also be improved overall still for the year.

[Company Representative] (CLSA): Okay. Thank you, sir. GNPA also improved over still for the year?

[Shareholder]: Okay. Thank you, sir. GNPA also improved over still for the year?

Speaker #4: I think we have I'll not talk on specifically GNPA but on the you are already seeing the trend on GNPA. On the credit cost we have given a guidance that we are roughly what 0.1 percent flow forward monthly which translates into 0.

Sanjay Garyali: I think I will not talk on specifically GNPA, but you are already seeing the trend on GNPA. On the credit cost, we have given a guidance that we are roughly what? 0.1% flow forward monthly, which translates into, even if you take 0.15%, close to about 1.6%, 1.7% credit cost. We have also given guidance that, let us say, if there is some challenge in the market, 25 to 30 bps or 40 bps, that quarter will get impacted. That is how we have given a guidance of overall 2.5%. But I think from a credit cost perspective, as of now, the way first 4 months or 4 and a half months have been, we see it closer to 2% rather than 3%.

Speaker #4: even if you take 0.15 close to about 1.6 1.7 percent credit cost and we have also given guidance that let's say if there is some challenge in the market 25 to 30 bips or 40 bips that quarter we'll get impacted and that's how we given a guidance of overall 2.5.

Speaker #4: But I think from a credit cost perspective as of now the way first four months or four and a half months have been we see it closer to 2 percent rather than 3 percent.

Speaker #5: Okay, thank you, sir. And all the best for the full year.

[Company Representative] (CLSA): Okay. Thank you, sir, and all the best for the full year.

[Shareholder]: Okay. Thank you, sir, and all the best for the full year.

Speaker #1: Thank you. The next question is from the line of Shaleen Kapadia from IIFL Capital. Please proceed with your question.

Operator: Thank you. The next question is from the line of Sharleen Kapadia from IIFL Capital. Please proceed with your question.

Sharleen Kapadia: Hi, sir. Thanks for the opportunity and congratulations on a great quarter. Sir, just one question on NIM. Sir, where do you expect it to settle over the year?

Shalin Kapadia: Hi, sir. Thanks for the opportunity and congratulations on a great quarter. Sir, just one question on NIM. Sir, where do you expect it to settle over the year?

Speaker #5: Hi, sir. Thanks for the opportunity, and congratulations on a great quarter. Sir, just one question on memes, sir. Where do you expect it to settle over the year?

Speaker #4: Yeah. Do you want to take that? Memes? Yeah. Where do you think, settling?

Sanjay Garyali: Yeah. Do you want to take that?

Krishan Gopal: NIM.

Sanjay Garyali: NIM. Yeah.

Sharleen Kapadia: Where do you think settling by year-end?

Shalin Kapadia: Where do you think settling by year-end?

Speaker #5: So, there is slightly more scope in the NIM. It's definitely about 15 to 20 bps more from here, and that will gradually come in.

Krishan Gopal: There is a slightly more scope in the NIM. It is definitely about 15, 20 bps more from here, and that will gradually come into. By the year-end, we can see addition of about definitely at least 15 to 20 bps, and which takes care of any glitches in the cost of funds, et cetera.

Speaker #5: So by the year end there will be a we can see addition of about definitely at least 15 to 20 bips. And which takes care of any glitches in the cost of funds etc.

Speaker #5: We will see any.

Sanjay Garyali: This is assuming that there is no rate drop.

Speaker #4: This is assuming that there is no rate drop. So, let's say there's a minor rate increase—we have already explained to you that we don't see any impact because of that.

Krishan Gopal: There is no rate drop.

Sanjay Garyali: So, let's say there is a minor rate increase. We have already explained to you that we do not see any impact because of that. If there is a rate drop, then it can go further.

Speaker #4: But unless there's a rate—if there's a rate drop, then it can go further.

Speaker #5: Okay. Got it sir. Thank you.

Sharleen Kapadia: Okay. Got it. Thank you.

Shalin Kapadia: Okay. Got it. Thank you.

Speaker #4: And I think what will start kicking in right now, since MIMs are on the book and we have increased the customer yields by approximately 55 basis points.

Sanjay Garyali: I think what will start kicking in right now, since NIMs are on the book and we have increased the customer yields by approximately 55 basis points. The impact of that on the book right now is only 12 bps. You understand that disbursement moving into book will take time. So by the year-end, let's say if that 55 bps is fully baked into the book, that itself will be 55. So 55 minus 12 is, let's say, 25, 30. We have not done the exact math, but you can just assume how much that will be on a full book disbursement by end of the year.

Speaker #4: Now, the impact of that on the book right now is only 12 bps, because you understand that disbursement moving into the book will take time.

Speaker #4: So by year-end, let's say if that 55 bps is fully baked into the book, that itself will be 55. So 55 minus 12 is, let's say, 25 or 30.

Speaker #4: So, we have not done the exact math, but you can just assume how much that will be on a full book disbursement by the end of the year.

Speaker #5: So is it fair to assume that 15 20 bips of increase is more of a conservative number from here.

Sharleen Kapadia: So is it fair to assume that 15, 20 bps of increase is more of a conservative number from here?

Shalin Kapadia: So is it fair to assume that 15, 20 bps of increase is more of a conservative number from here?

Speaker #4: Yes, sir. That's the bare minimum, and the range is about, as Sanjay has mentioned, around 30.

Krishan Gopal: Yes. That's a bare minimum and the range is about, as Sanjay has mentioned, about 30.

Speaker #5: Yeah. I think 15 can be 15 can go up to 25. Got it. Thank you.

Sanjay Garyali: Yeah, I think 15 can go up to 25.

Sharleen Kapadia: Got it. Thank you.

Shalin Kapadia: Got it. Thank you.

Speaker #1: Thank you. The next question is from the line of Sreejan Sinha from GCLI. Please proceed with your question.

Operator: Thank you. The next question is from the line of Srijan Sinha from Future Generali India Life Insurance Co. Ltd. Please proceed with your question.

Speaker #3: Yeah. Hi, sir. Thank you. Sir, can you please help me quantify the one-time impact on the finance cost? So, let's say we were carrying about ₹500 crore of extra liquidity on the balance sheet.

Srijan Sinha: Yeah. Hi, sir. Thank you. Sir, can you please help me quantify the one-time impact on the finance cost? Let's say we were carrying about INR 500 crores of extra liquidity on the balance sheet. The quarterly impact of that would be, let's say, closer to INR 10 odd crores. Plus, Krishan also talked about some kind of MTM of about INR 4 crores being included in the finance cost. Is it fair to assume that this INR 14 crore impact that we see in this finance cost in this quarter, this is not going to recur in the second quarter? And the only impact will be for the growth that you will deliver from here on.

Speaker #3: So, the quarterly impact of that would be, let's say, closer to ₹10 crore. Plus, Krishnan also talked about some kind of mark-to-market of about ₹4 crore being included in the finance cost.

Speaker #3: So is it fair to assume that this ₹14 crore impact that we see in this finance cost in this quarter is not going to recur in the second quarter?

Speaker #3: And the only impact will be for the growth that you will deliver from here on.

Speaker #4: Yeah. So MTM impact will not be there so.

Krishan Gopal: Yeah. MTM impact will not be there.

Speaker #5: MTM is MTM—that is how much we have.

Sanjay Garyali: MTM is how much we have?

Speaker #4: MTM is about 3.93 crores.

Krishan Gopal: MTM is about INR 3.93 crores.

Speaker #5: So, let's say ₹4 crores. Sreejan, you will not see this from the second quarter onwards. And now, the excess liquidity—what is the net impact, net of, let's say...

Sanjay Garyali: So, let's say INR 4 crores, Srijan, you will not see in Q2 onwards. Now the excess liquidity, what is the net impact? Net of, let's say

Speaker #4: So, the net impact, net of what we have earned on the investments, etc.—that impact is about ₹3.5 to ₹4 crore. So, if we normalize that and don't keep the excess liquidity, that should also not be there.

Krishan Gopal: The net impact, net of what we have earned on the investments, et cetera, that impact is about INR 3.5 crore, INR 4 crore. If we normalize that and don't keep the excess liquidity, that should also not be there.

Speaker #3: Okay. So 8 crore is the delta that you see over the Q.

Srijan Sinha: Okay. So INR 8 crore is the delta that you see over the Q

Speaker #4: Broadly broadly 8 crores number.

Krishan Gopal: Broadly, INR 6 crore.

Speaker #3: Okay. And sir, second question is on the ECL coverages. How do you see that panning out over the next, let's say, two to three quarters?

Srijan Sinha: Okay. And sir, second question is on the ECL coverages. How do you see that panning out over the next, let's say, 2, 3 quarters? Given that you are seeing significant improvement in your selections.

Speaker #4: So, given that, given that you are seeing significant improvement in your selections.

Speaker #5: Yeah, so ECL coverage—if your question is if it has come down—so if we look at MSME and MFI individually, there is no reduction.

Krishan Gopal: Yeah. ECL coverage, if your question is if it has come down. If we look at MSME and MFI individually, there is no reduction. In fact, maybe a slight bit increase.

Speaker #5: In fact, maybe a slight bit increase also. However, in the composition, there is a change. In the Stage 2 and Stage 3, as we have mentioned on that credit cost slide, the MFI Stage 2 and Stage 3 contribution has come down.

Sanjay Garyali: Also. However, in the composition there is a change. In the stage 2 and stage 3, as we have mentioned on that credit cost slide, the MFI stage 2 and stage 3 contribution has come down. You know MSME, the LGD, et cetera, are lesser because of the secured and all. That is how on the face of it, the coverage seems to be reducing. However, it holds on very well, both MSME and MFI respectively. The change on the face of it is just because of the composition change.

Krishan Gopal: Also. However, in the composition there is a change. In the stage 2 and stage 3, as we have mentioned on that credit cost slide, the MFI stage 2 and stage 3 contribution has come down. You know MSME, the LGD, et cetera, are lesser because of the secured and all. That is how on the face of it, the coverage seems to be reducing. However, it holds on very well, both MSME and MFI respectively. The change on the face of it is just because of the composition change.

Speaker #5: And you know MSME the LGD etc. are lesser because of the secured and all. So that is how on the face of it the coverage seems to be reducing.

Speaker #5: However, it holds on very well for both MSME and MFI, respectively. The change, on the face of it, is just because of the composition change.

Speaker #3: Okay. And sir, my final question is: What is the conversation with the rating agencies? Is there any benchmark that they are looking at for a credit rating upgrade?

Srijan Sinha: Okay. And sir, my final question is, what is the conversation with the rating agencies? Is there any benchmark that they are looking at for a credit rating upgrade?

Speaker #4: So, I think they were, in our last discussion only, Sreejan, they were quite satisfied with our performance. Their concern was the external environment. Now, I think most of the rating agencies have assumed that the external environment has limited impact, especially the West Asia crisis, has limited impact on the MFI book.

Sanjay Garyali: I think in our last discussion on this region, they were quite satisfied with our performance. Their concern was the external environment. Now, I think most of the rating agencies have assumed that the external environment has limited impact, especially the West Asia crisis has limited impact on the MFI books. We are very hopeful that they will look at it positively, because from a pure entity perspective, they were extremely positive in our last two conversations.

Speaker #4: So we are very hopeful that they will look at it positively. Because from a pure entity perspective they were extremely positive. In our last two conversations.

Speaker #3: Okay. Sure. Thank you sir.

Srijan Sinha: Okay, sure. Thank you, sir.

Speaker #4: Sure.

Sanjay Garyali: Sure. Thanks, Srijan.

Speaker #5: Thanks Sreejan.

Speaker #1: Thank you. The next question is from the line of Sripal Doshi from Equarius. Please proceed with your question.

Operator: Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please proceed with your question.

Speaker #3: Hi sir. Thank you for giving me the opportunity. So my question was on the product portfolio front. While we are ramping up MSME, do we have any plans to also launch individual loans as a product? Because industry players are transitioning primarily into individual loans and then also launching products like micro mortgages.

Shreepal Doshi: Hi, sir. Thank you for giving me the opportunity. My question was on the product portfolio front. While we are ramping up MSMEs, do we have any plans to also launch individual loan as a product? Because as industry players are transitioning primarily into individual loan and then also launching products like micro mortgages. Do we have any plans of having individual loan as a category within the product portfolio?

Speaker #3: So, do we have any plans of having individual loans as a category within the product portfolio?

Speaker #4: Okay, so I have just—Sripal, I just explained in my call that we have received the board approval also for launching the individual loan product.

Sanjay Garyali: Okay. Shreepal, I just explained in my call that we have received the board approval also for launching the individual loan product. We are now doing the system development. Hopefully by first week of September, we would have done the first individual loan. The important thing is that this is not like microfinance loan from a JLG to individual. We will be doing serious credit on this. We understand credit assessment, so it is not that we are doing banking credit. From the MSME credit that we do, that is 100% assessment. They will have an oversight on the MFI credit that will be done. We already have about 250 branches where we have a PQM who is a kind of a credit person, who reports separately into the credit vertical. He and she will start working immediately on the individual loan.

Speaker #4: And we are now doing the system development. Hopefully, by the first week of September, we will have done the first individual loan. Now, the important thing is that this is not like a microfinance loan from a JLG to individual.

Speaker #4: So, we will be doing serious credit on this, and we understand credit assessment. It is not that we are doing banking credit. From the MSME credit that we do, that is 100% assessment.

Speaker #4: That will be they will have an oversight on the MFI credit that we will be done. We already have about 250 branches where we have a a PQM who's a a kind of a credit person who reports separately into the credit vertical.

Speaker #4: He and she will start working immediately on the individual loan. Right now, they are doing credit for MFI, so the individual loan portfolio will have a specific credit person who will evaluate the loan.

Sanjay Garyali: Right now they are doing credit for MFI. The individual loan portfolio will have a specific credit person who will evaluate the loan. Initially, we are looking at roughly an average of about INR 1.5 lakh ticket size. Customers who have some shop or some outlet. It is not like operating from home, three years business vintage. I think all of us, we understand our background is all credit only. We understand credit. We have come out with a very robust individual loan product, which we have launched today. That will be an offering to the existing customers to start with, and then depending upon the performance, we will go to new customers. But that is the MFI upgrade. Micro loans that you are referring to on the mortgage side, that is, let's say, level 2 of this.

Speaker #4: And initially, we are looking at roughly an average of about 1.5 lakh ticket-size customers who have some shop or some outlet. It is not like operating from home.

Speaker #4: Three years business vintage. So there there is a I think all of us we understand our background is all credit only. We understand credit.

Speaker #4: And we are coming out with a very—we have come out with a very robust individual loan product, which we have launched today. So that will be an offering to the existing customers to start with.

Speaker #4: And then, depending upon the performance, we will go to new customers. So, but that is the MFI upgrade. Micro loans that you are referring to on the mortgage side, that is, let's say, level two of this.

Speaker #4: So, eventually, the credit memory that we want to build is that MSME and MFI will operate two different businesses. They can share each other's real estate.

Sanjay Garyali: Eventually the credit memory that we want to build is that MSME and MFI will operate two different businesses. They can share each other's real estate. But within MFI also we may have a secured operating outside to those customers. But we will not do anything without credit. Anything that is being done outside JLG will have very strong credit around it. We understand what kind of credit is needed. That is an assurance that I want to give you. We will see good growth eventually. But yeah, obviously we will go slow and we will test the market before going all out.

Speaker #4: But within MFI also, we may have a secured out operating outside through to those customers. But we will not do anything without credit.

Speaker #4: So anything that is being done outside JLG will have very strong credit around it. And we understand what kind of credit is needed.

Speaker #4: So that is an assurance that I want to give you. And we will see good growth eventually. But yeah, obviously we will go slow and we will test the market before going all out.

Speaker #3: Got it. And sir, initially, what is the pricing that we are looking at for this—for individual loans, as well as, like you alluded to, micro-mortgages as well?

Shreepal Doshi: Got it. And sir, initially, what is the pricing that we are looking at for this, for individual loan, as well as you said about micro mortgages as well, while that is level 2-

Speaker #3: While that is level two.

Speaker #4: It will be, sir. The pricing will roughly be the same, but it could be—we are, it could be about, let's say, 100 bps lower, but roughly the same.

Sanjay Garyali: The pricing will roughly be the same, but it could be about, let's say, 100 bps lower, but roughly the same. So you can assume same to 100 bps lower.

Speaker #4: So you can assume the same to be 100 basis points lower.

Speaker #3: Got it. Got it. Got it, sir. So the second question was on the capital raise. I'm sorry, I joined the call a little late.

Shreepal Doshi: Got it. Got it, sir. The second question was on the capital raise. I'm sorry, I joined the call little late. So what is the timeline on capital raise, as the growth on the loan book side is now back, what is the broader timeline that we are looking at in terms of capital raise?

Speaker #3: So, what is the timeline on the capital raise, as growth on the loan book side is now back? What is the broader timeline that we are looking at in terms of the capital raise?

Speaker #4: So, while we speak, even after having additional liquidity, our leverage is 2.32 times, and capital adequacy is 36% or so. So, we are very well capitalized.

Sanjay Garyali: While we speak, even after having additional liquidity, our leverage is 2.32 times and capital AT1 CE is 36% or so.

Krishan Gopal: While we speak, even after having additional liquidity, our leverage is 2.32 times and capital AT1 CE is 36% or so.

Sanjay Garyali: We are very well capitalized, and this capital is good for the growth plans which we have mentioned, which is broadly 2 years. However, we should be on the road at least 6 to 7 months before. So middle of next financial year, we should be on the road and discussing the capital raise with the investors. Now till 1.5 years, which is middle of FY27, 28, we are fine, and post that, we will be coming on the road to have a discussion on the capital raise. Sir, just a follow-up here. What is the Tier-1 ratio that we are keeping in mind as a trigger? Sushil, I suggest you come back in the queue, please. My request is, please. Sure. Thank you. Thank you for answering my question.

Krishan Gopal: We are very well capitalized, and this capital is good for the growth plans which we have mentioned, which is broadly 2 years. However, we should be on the road at least 6 to 7 months before. So middle of next financial year, we should be on the road and discussing the capital raise with the investors. Now till 1.5 years, which is middle of FY27, 28, we are fine, and post that, we will be coming on the road to have a discussion on the capital raise.

Speaker #4: And this capital is good for the growth plans which we have mentioned, which is broadly two years. However, we should be on the road at least six to seven months before, so middle of next financial year we should be on the road and discussing the capital raise with the investors.

Speaker #4: So, now, till one and a half years—which is the middle of FY2028—we are fine. And after that, we will be coming to the market to have a discussion on the capital raise.

Speaker #3: Sir, just a follow-up here: What is the Tier One ratio that we are keeping in mind as a trigger?

Shreepal Doshi: Sir, just a follow-up here. What is the Tier-1 ratio that we are keeping in mind as a trigger?

Speaker #4: So Sripal, I suggest you come back in the queue, please. My request is, please, if you could.

Sanjay Garyali: Sushil, I suggest you come back in the queue, please. My request is, please.

Speaker #3: Sure, sir. Thank you. Thank you for answering my question.

Shreepal Doshi: Sure. Thank you. Thank you for answering my question.

Speaker #1: Thank you. Ladies and gentlemen, in the interest of time, that was the last question. I would now like...

Operator: Thank you. Ladies and gentlemen, in interest of time, that was the last question. I would now like-

Speaker #4: Why is it that—sorry, if that was the last question, then let Sripal continue with that. No, we'll just let Sripal finish that, then.

Krishan Gopal: Sorry, if that was the last question, then let Shreepal continue with that. We will just let Shreepal finish that then. Just let Shreepal finish that.

Sanjay Garyali: Sorry, if that was the last question, then let Shreepal continue with that. We will just let Shreepal finish that then. Just let Shreepal finish that.

Speaker #4: Just let Sripal finish that.

Speaker #1: He left the queue sir.

Operator: He left the queue, sir.

Speaker #4: Oh, yeah, yeah. So, anyways, I think the question was: what is the level of Tier One? So, the first thing is, in our 36% capital adequacy, it is broadly Tier One only.

Krishan Gopal: Oh, yeah. So anyways, I think the question was, what is the level of Tier-1? The first thing is in our 36% capital adequacy, it is broadly Tier-1 only. On the lower side, what level we can go, I think regulatory is 15%. However, our internal risk management practices have a graded level of indicators, wherein we wish to maintain bare minimum about 23% to 25%. Then there are graded indicators wherein we need to work on the capital base. Yeah. I think that is what we understood from the question, and that was the response. My request is, we can take one last question in case there is anybody in the queue, otherwise, we can end.

Speaker #4: And on the lower side, what level can we go? I think regulatory is 15%. However, our internal risk management practices have a graded level of indicators.

Speaker #4: What I mean is, we wish to maintain about the bare minimum—about 23% to 25%. And then there are graded indicators where we need to work on the capital raise.

Speaker #4: I think that that's it. That's that's what we understood from the question and that was the response and that is it. My request is we can take one last question in case there is anybody in the queue.

Sanjay Garyali: My request is, we can take one last question in case there is anybody in the queue, otherwise, we can end.

Speaker #4: Otherwise we can end.

Speaker #1: Okay. The next question is from the line of Rajiv Mehta from Yes Securities. Please proceed with your question.

Operator: Okay. The next question is from the line of Rajiv Mehta from Yes Securities. Please proceed with your question.

Speaker #2: Yeah. Thank you. Yeah. So the question is on how do you see the absolute OPEX you know moving given that you know what you plan to do with your you know rationalization of branches adding few branches then rolling out you know introducing new products on the individual loan side.

Rajiv Mehta: Yeah. Thank you. The question is on how do you see the absolute OpEx moving, given that what you plan to do with your rationalization of branches, adding few branches, then rolling out, introducing new products on the individual loan side, then rolling out MSME in existing MFI branches. Putting everything together, how do you see your absolute OpEx moving in the current year? Then what kind of growth one should pencil in for next year in absolute OpEx?

Speaker #2: Then, you know, rolling out MSME in existing MSI branches—putting everything together, how do you see your absolute OPEX moving in the current year, and what kind of growth should one pencil in for next year in absolute OPEX?

Speaker #4: Absolutely. So I think Rajiv last year if you see our OPEX was what about 830 crores. And this year we are the first quarter is about 204 205.

Krishan Gopal: Absolutely. So I think, Rajiv, last year, if you see our OpEx was about INR 830 crore. This year, the first quarter is about INR 204, INR 205. On an AOP, we had assumed that, and we had shared with all of you that we expect a 4% to 5% increase in OpEx. But that is without rationalization and without taking some measures. We are pretty confident that we will be able to save at least some OpEx on that AOP that we have given, which we have already shared that the effort is either through branch rationalization or through other means. We take at least 2% to 3% reduction in the OpEx that we have shared with you. The new product launch or let us say, because we are not creating any separate real estate, it is mostly rationalization of resources.

Speaker #4: I think, while so, on an AOP, we had assumed that we had shared with all of you that we expect a 4% to 5% increase in OPEX.

Speaker #4: But that is without rationalization and without taking some measures. We are pretty confident that we will be able to save at least some OPEX on that AOP that we have given.

Speaker #4: As we have already shared, the effort is either through branch rationalization or through other means. We are targeting at least a 2–3% reduction in OPEX, as we have shared with you.

Speaker #4: The product—new product launch, or let's say, because we are not creating any separate real estate. It is mostly rationalization of resources, so you won't see resources actually, in absolute terms, increasing anywhere significantly.

Krishan Gopal: You won't see resources actually in absolute terms increasing anywhere significantly. The sales guys are what? Let's say even if MFI needs about what, 200, 300 people, and similarly about 100 people in MSME. 300, 400, or 500 people also will hardly have any impact on the overall OpEx. That's why deliberately we are saying that we are utilizing the existing real estate of both MFI and MSME. Next year onwards, I think, going forward, rather than giving you just one-year perspective, eventually, we will be at roughly around 6% to 7% OpEx, both the businesses put together.

Speaker #4: So the sales guys are, what, let's say—even if MFI needs about, what, 200–300 people, and similarly about 100 people in MSME.

Speaker #4: It doesn't—300, 400, or 500 people also will hardly have any impact on the overall OPEX. So, and that's why deliberately we are saying that we are utilizing the existing real estate of both MFI and MSME.

Speaker #4: From next year onwards, and going forward, rather than giving you just a one-year perspective, eventually we will be at roughly around 6% to 7% OPEX, both businesses put together.

Speaker #2: Okay. This OPEX, too, averaged over a year. Yeah.

Rajiv Mehta: Okay. OpEx to average a year, yeah.

Speaker #4: Absolutely.

Krishan Gopal: Absolutely.

Speaker #2: Got it. Thank you. That's it, sir.

Rajiv Mehta: Got it. Thank you. Best of luck.

Speaker #1: Thank you. Ladies and gentlemen, in the interest of time, that was the last question for today. I would now like to hand the conference over to Mr. Sanjay Veriali for closing comments.

Operator: Thank you. Ladies and gentlemen, in interest of time, that was the last question for today. I would now like to hand the conference to Mr. Sanjay Garyali for closing comments. Over to you, sir.

Speaker #1: Over to you sir.

Speaker #4: Yeah. Thank you so much. Thanks, everybody, for—I think the most important thing is that each one of you, how you have backed us in our tough times.

Sanjay Garyali: Yeah, thank you so much. Thanks, everybody. I think the most important thing is that each one of you, how you have backed us in our tough times. I think the most important thing that we have realized over the last, I think 12 to 18 months is that you will see constantly progress happening. We would want to deliver ahead of whatever we are explaining to you. There is growth opportunities that we see, and the commitment is that there will be no unnecessary risk we will be taking. We see good growth opportunity and good takeoff in the next six to nine months going from here. With that, I would want to thank all of you for taking time out for the call.

Speaker #4: And I think the most important thing that we have realized over the last, I think, 12 to 18 months is that you will see constant progress happening, and we would want to deliver ahead of whatever we are explaining to you.

Speaker #4: There are growth opportunities that we see. And the commitment is that no unnecessary risk will be taken. But we see good growth opportunity and good takeoff in the next six to nine months going from here.

Speaker #4: So, with that, I would like to thank all of you for taking time out for the call.

Operator: Thank you. On behalf of Fusion Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

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Q1 2027 Fusion Finance Ltd Earnings Call

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