Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fusion Finance Ltd (BOM:543652, Financial) reported a steady disbursement of INR2,987 crores in Q1 FY25, maintaining stability compared to Q4.
- The active borrower count increased by 8.44% annually, reaching around 39.5 lakhs.
- The company opened 101 new branches in Q1, bringing the total to 1,398 branches, which is expected to enhance their reach and service capabilities.
- Net Interest Margin (NIM) remained stable at 11.6%, with a 19 bps reduction in the cost of borrowing.
- The MSME book grew by approximately 8% quarter-on-quarter, reaching INR570 crores, indicating a healthy expansion in this segment.
Negative Points
- There was a slight moderation in collections over the last 2-3 months, with concerning trends in some pockets.
- The company recognized an increase in customer leverage, with 33% of customers having outstanding loans across multiple microfinance institutions.
- OpEx for Q1 saw an increase due to new branch openings and annual increments, which may impact profitability in the short term.
- The gross NPA stands at 5.46% and net NPA at 1.25%, indicating a rise in non-performing assets.
- The company had to proactively move INR221 crores of its portfolio from Stage-1 and Stage-2 to Stage-3, reflecting higher credit costs and potential risks.
Q & A Highlights
Q: Can you explain the recent tightening of the ECL model and the impact on credit costs?
A: This is an annual exercise done with our auditors. We adjusted our PD and LGD assumptions, shifting from a 5-year to a 3-year average, which includes the COVID period, leading to an elevated LGD.
Q: What prompted the drastic recognition of INR221 crores of borrowers moving to Stage-3?
A: Approximately 48,000 customers moved from Stage-1 to Stage-3 and 6,500 from Stage-2 to Stage-3. This was due to concerning trends in customer behavior, including missed payments and high leverage with multiple lenders.
Q: How does the ECL model allow for moving accounts not past 90 days DPD to Stage-3?
A: We discussed this with our auditors. The movement is based on default data from credit bureaus and missed payments, allowing us to create more provisions.
Q: What percentage of the borrower base has more than four loans, and how does this impact stress formation?
A: As of March, 20% of our borrowers had more than four loans. This segment is closely monitored, and we have taken steps to mitigate risks, including stopping disbursements in certain branches.
Q: What actions have been taken to address the challenges in collections and customer leverage?
A: We have calibrated disbursements, tightened customer onboarding criteria, rebalanced incentive structures, and strengthened our collection team. These steps are already showing early signs of success.
Q: How are the trends in collection efficiency on a month-on-month basis?
A: There has been a slight moderation in collection efficiency, with April at 96.6%, May at 96.2%, and June at 96%. July has shown similar trends.
Q: What is the share of AUM coming from the geographies with higher stress?
A: Tamil Nadu, Rajasthan, Odisha, MP, and Jharkhand contribute around 25-28% of our AUM. These regions have shown higher stress, prompting us to take corrective actions.
Q: Why was there an increase in ticket size despite higher stress formation?
A: The increase in ticket size is due to disbursements to more mature customers. We have not increased the ticket size this quarter.
Q: What are the defining characteristics of defaulting customers, and what early warning indicators are used?
A: Defaulting customers typically miss consecutive payments, show no intent to pay, have low center meeting attendance, and exhibit poor behavior in credit bureaus. These indicators help us identify and address potential defaults early.
Q: How is the attrition trend among field officers, and what impact does it have on collections?
A: Higher attrition is observed in tougher working conditions, leading to more door-to-door collections. We are addressing this by deploying seasoned officers and strengthening our collection teams.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
