Fusion Finance Limited (FUSION) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Fusion Micro Finance Limited, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you.

Thank you, Michelle. Good morning, everyone, and welcome to Fusion Micro Finance Q2 FY '24 Earnings Call. On behalf of ICICI Securities, I would like to thank Fusion management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of Fusion, represented by Mr. Devesh, Managing Director and CEO; Mr. Gaurav, CFO; Mr. Tarun, COO, MFI Business; and Mr. Deepak, Company Secretary and Chief Compliance Officer. I will now hand over the call to Mr. Devesh for opening remarks, and then we'll open the floor for Q&A. Over to you, sir.

Thank you, Renish, and ICICI Securities for hosting us. I want to take this opportunity to wish all of you season's greetings and a very happy Diwali and many thanks for joining our Q2 financial year '24 results conference call. I'm here along with my colleague, Tarun, COO; Gaurav Maheshwari, CFO; and Deepak Madaan, Chief Compliance Officer. I would request you to please keep the presentation, which we've uploaded, handy. I would like to start with Slide #5 and 6 executive summary. All very significant highlights for this quarter has been that we have crossed a milestone of INR 10,000 crores of AUM. Our year-on-year growth of AUM has been 24.6%. And correspondingly, our disbursement this quarter at INR 2,344 crores has helped register a year-on-year growth of 14.71%. As a key highlight of this quarter was rating upgrades from CRISIL to A+/Stable. This is our second rating upgrade in less than 11 months. Last upgrade happened on 14 November 2022. Focus on our core building blocks continues. We have added 1.3 lakh new customers in Q2. Our total customer base now as of Q2 '24 is close to 3.7 million with a new customer addition of -- gross new customer addition of 2.4 lakhs in H1. Having grown 17.69% year-on-year, it will be pertinent to say that this is in line with our stated 10% to 12% increase in new customer acquisition year-on-year. We have added 2 new states, Andhra and Telangana this quarter and have also opened up 61 new branches, taking our total network to 22 states and 1,164 branches. Another very significant highlight has been the reduction in our marginal cost of borrowing to 10.55%, amidst a very high interest rate environment. This is a very strong validation of our robust liability management. Significantly, while we have continued to focus on building capacity, we have also continued our focus on improving our cost to income, which for the first half of financial year '24 stands at 36.34%, an improvement of 364 bps year-on-year. NIM has expanded further to 11.12%, registering a 23 bps increase over last quarter. This trajectory, as you will remember, is as per our earlier guidance on NIM. We have maintained healthy NIM while offering one of the lowest rates to our customer in the sector. Last but not the least, we have delivered a PAT of INR 125.69 crores for this quarter, sequentially up by 4.34% over Q1 and with a combined H1 '24 PAT of INR 246.15 crores, registering a year-on-year increase of 44.66%. If you refer to our last investor call at the end of Q1 financial year '24, you will remember that I had said that given the impact of unseasonal rains, which also unleashed their fury in Q2, especially in the geographies where we have a sizable presence, there would be temporary impact on both disbursement and collection. Starting with disbursements. Total disbursements in Q2, as I mentioned earlier, is INR 2,344 crores. We have seen -- but if I slice it further, we have seen a better traction in September, and similar trend has continued in October. And our average disbursement in these 2 months has been INR 850 crores. This gives us confidence to grow in mid-20s as per what we have been stating always. We have also been seeing encouraging improvement in collection efficiency. Please refer to Slide #8. Our collection efficiency as of Q2 stands at 97.6% versus 97.3%. Out of our top 5 states, 4 of them, UP, Bihar, Odisha and Tamil Nadu, have shown good improvement given that all these -- 3 of these states have reeled under the impact of rains. We are -- even MP is showing a good traction now, and we are working with our customer, and we are very hopeful that you will see an improvement even in MP. Moving to Slide #9. Our GNPA as of Q2 financial year '24 stands at 2.68% and NNPA at 0.65%, registering a reduction of 52 bps and 13 bps, respectively, versus Q1 financial year '24. We had also mentioned during the last quarter's call that credit cost may marginally inch up temporarily due to the impact of unseasonal rains. I had also stated that it may take 2, 3 quarters to normalize this impact. Given the traction we are seeing, we are confident of having a credit cost of less than 3% in this financial year. I would also want to add here that during the last quarter, we have recovered INR 5.16 crores against our return of portfolio in Assam as part of the Assam Microfinance Relief Scheme launched by the state government to provide relief to all stakeholders of microfinance sector in Assam. I had mentioned we were the first company in the sector, which came out with a strategy to create extra provisions under the management overlay and also mentioned that whenever in good quarters, if there is a room available, we will add to this provision. We have added another INR 3.6 crores to management overlay, taking the overall amount to INR 61.48 crores. Focusing on our core area, we have sailed the course on building a network and optimizing our performance as we grow organically. Moving to Slide #18. As diversification is one of our key strategy since inception, from operating in 12 states in 2017 to 22 states across 1,164 branches as of Q2, we continue to remain focused on our business composition across states, maintaining positive traction in all our large states. We are confident that we will be able to maintain the prudent composition of all our large states in our portfolio mix as we go along. Our top 5 states, Bihar, UP, Odisha, MP and Tamil Nadu, have a concentration of close to 70% as of Q2, up very marginally from Q1 against 74% in financial year 2017. As we have mentioned in the past, we are growing further in some of our existing states, along with newer states like Karnataka, Andhra and Telangana. We are confident that over a period of time, the concentration in top 5 states will get further rationalized. Composition of rural portfolio stands at 93%. Slide #18 also shows our network built across the last few years in all the states that we have been operational. We are targeting to open -- as I mentioned, we have opened 61 new branches until -- in this quarter. We are targeting to open approximately 160 to 170 branches in financial year '24. While on the point of branch network, I wish to take you to Slide #22. With our continued focus on establishing branches across last few years, as you will see, we now have a very good mix of vintage and new branches, a very strong operating lever for future growth. As of Q2 financial year '24, we have 599 branches out of 1,088 branches in micro finance that are more than 3-year vintage, and they contribute 68% of our portfolio. The remaining 499 branches are less than 3 years currently and contribute 32% to our portfolio. Slide #21 in the presentation highlights our long-standing approach. Growth with prudence. As we have mentioned earlier, one of the key focus area has been new customer acquisition, our customer -- active customer base stands at 36 -- close to 3.7 million, registering a 15.69% year-on-year growth versus Q2 of financial year '23. We have maintained a healthy mix of new and existing customers as reflected in our ATS and outstanding per borrower is INR 26,200 versus INR 25,800 as of Q1 '24. A strong validation of our focus on borrower addition is customers unique to Fusion. If you remember, I had mentioned that every 6 months, we will take this data from the credit bureau. And we have taken a recent data where it shows that our 31% is our unique customers to Fusion as of September '23. Slide #20 captures our key productivity metrics. Our GLP per branch has been falling a consistent growth trajectory and now stands at INR 8.8 crore per branch as of Q2 financial year '24 versus INR 9.1 crore as of Q1 '24. It is because of the new branches we opened as you will see that we have been constantly improving on branch productivity metrics Q-on-Q and even year-on-year. We are -- average branch productivity at sector level for comparable large NBFC is around INR 8 crore as of June 2023. GLP per loan has also been tracking consistently strong across the past years and the same in Q2 financial year '24 is INR 1.4 crore per field officer, a 17% growth year-on-year. Borrowers per branch MFI business stands at 3,381 crores as of Q2 financial year '24 versus 3,513 as of Q1 '24. It is because, as I mentioned earlier, we have opened new branches. I also would like you to take you through Slide #36 on MSME. We started this vertical in December 2019 with a clear vision of building credit underwriting capabilities, mapping adjacencies, tapping the potential of the missing middle and serve MFI customers, who are moving up the value chain. We are excited about this is -- how this is shaping up. It is 4% of our overall book. Out of the 400-odd MSME book, 50% is secure. We have been guiding that we would like to maintain a portfolio mix of 65% to 70% secured and 25% to 30% unsecured, balancing prudence and yield. We are confident of reaching this ratio mix in the next 3 quarters. I would like to mention again that we will share our broad growth strategy on both the verticals in the next 2 quarters. Having shared the highlights of our Q2 financial year '24 performance with you, I would like to reiterate that our goal remains -- goal always is to maintain a long-term view on building our business, setting a strong and consistent growth platform and sustainability. Thank you very much.

Thanks, Devesh. Good morning, everyone. I'd like to give some key highlights for the financials. Interest income has increased by 3.72% on quarter-on-quarter basis and 24.27% on a year-on-year basis. Total income has increased to 3.34% on a quarter-on-quarter basis and 26.29% on a year-on-year basis. Our marginal cost of fund has reduced by 20 bps on a quarter-on-quarter basis. We are focused on optimizing our cost of funds. As we all know that in last 2 years of our -- our Central Bank of India has increased the repo rate by 250 bps. We as a company are able to manage with 61 bps increase in our marginal cost of funds. This is because of our strategy of borrowing on fixed and floating rates with a 1-year MCLR, our strong relationship, negotiations, strong operational and financial performance, capitalization and rating upgrade. We are keeping a close watch on the micro and macro development happening globally and fine-tune our strategy from time to time to optimize the cost of fund. Liability mix would largely remain the same. Our upgraded rating of A+ by CRISIL would help us in exploring capital market and ECB exposure. In this quarter, we have received some large sanctions from State Bank of India, HDFC Bank, Kotak Mahindra Bank, HSBC, SIDBI, ICICI, Axis Bank, et cetera, with a better commercial. NIM has increased by 23 bps to 11.12% from Q1 FY '24 and increased by 91 bps on a year-on-year basis. It is mainly from churning of lower yield portfolio to higher yield portfolio and controlled cost of fund. Cost-to-income ratio has marginally increased by 15 bps from 36.26% of Q1 FY '24 to 36.41% in Q2 FY '24. We are confident for closing this financial year by less than or equal to 36%. The operating cost is stable on a quarter-on-quarter basis. The operating cost for MFI business is 5.20%, and MSME business is 0.40%. In this quarter, we have opened 61 branches, pan-India. Would request everyone to refer Slide #22, wherein our 599 branches are contributing 68% of the AUM. Going forward, our branch productivity will increase. Would like to mention again that we will keep on adding in our network, people and continue to invest in our digital infrastructure. Operating costs would largely be stable. The pre-provision operating profit is INR 241.79 crores as on September 30, 2023, which has an increase of 29% year-on-year. It has increased by 2% from Q1 FY '24. PPOP is having an impact of derecognition of interest due to write-off. The ECL of September is INR 300.24 crores, which includes INR 61.48 crores in the management overlay. The overall coverage has been increased to 125% from 118% on a quarter-on-quarter basis. Credit cost is 0.84% on the closing portfolio and without management overlay, it is 0.79%. The company has provided impairment of INR 75.28 crores in Q2 FY '24. We have done write-off of INR 103.42 crores in Q2, which is 1.03% of the closing AUM. Due to this write-off, we have derecognized the interest amounting to INR 24.95 crores. As of 30 September, the restructured portfolio is INR 2.95 crores, which is 0.3% on the closing AUM. This is already a part of Stage 3. Please refer to Slide #9. PAR 90 is 2.12% of the portfolio, out of which 0.32% is pertaining to pre-March '21, which is part of Stage 3, the remaining PAR 90 of 1.80% belongs to post March '21. We are still considering the old and the new portfolio from April '21 since the time of listing. Thank you, everyone.

[Operator Instructions] We'll take the first question from the line of Rajiv Pathak from GeeCee Holdings.

Yes. Congratulations, sir, on a very good performance this quarter. A few questions from my side. First and foremost, sir, if you can just touch upon how do you see the competition intensity in our core states, UP, Bihar, where we have seen a lot of players now focusing incrementally, but we have actually controlled our ticket sizes. So can you just touch upon that? And on that basis, how do you see the growth in the micro finance panning out March '24 exit and March '25 exit? And my second question would be on the asset quality and the margins. I'll come to that once we get us -- get some insights on this one.

Yes. So thank you, Rajiv. Rajiv, look, in our core states, I'll give you one data because as per what we have taken from credit bureau, if I talk about UP, our customers, which are unique to Fusion, are still 37%, 38%. I remind you, overall, pan-India, our uniques is around -- has come down to around 31%. Similarly, in Bihar, or all our top states, we are seeing that we are able to grow consistently and acquire new customers and also having customers, which are unique to us. So we are well entrenched in these geographies. And additionally, what we are doing is that in the last 2, 2.5 years, we have split around 100 branches. The idea is that and our policy is when the branch touches more than INR 15 crores of portfolio, we split that branch. So 70%, 75% of those branches, the split has happened in states, top 5 states, especially in Bihar and UP. The idea is that, one, because it shows there is a potential to grow. Also from monitoring aspect and risk aspect, we split the branch. So from both aspects, it is beneficial. So coming to your -- I think this point in all -- we are -- yes, competition has entered in some of the states, but I think we are well entrenched, and we are still being very, very calibrated. We are looking at our numbers very closely. Our UP, Bihar portfolio is very good. Portfolio quality is panning out very good. So we do not see any kind of challenge in some of these states.

Okay. And sir, any target for the MSME AUM?

Yes. So Rajiv, as I mentioned to you, I have been saying this, that we have fully invested in this vertical. We have more than now 800 people starting from COO, MSME till the frontline staff. We have close to around 76 branches. We're opening another 30 branches this year. It'll be 100 branches, is already at 4% of our overall portfolio. It shows the kind of focus we are giving to this vertical. As I mentioned in my commentary, I think please wait for 1 or 2 quarters. Maybe in Q1 of financial year, we will come out and give a broad growth strategy around both the verticals.

Sure, sir. Sir, on the spreads, I think you have not seen any companies this quarter report quarter-on-quarter improvement in spreads. I think with the flattish cost of funds, which is quite a remarkable thing. So if you can just guide us as to how is the incremental yield and the incremental cost of fund panning out? And how do you see the spreads going forward for the next 3 or 4 quarters?

Yes. So Rajiv, if you remember, even when we were -- we came for listing, and we have been guiding The Street that our first target is to reach a NIM of 11.2% to 11.5%. The whole trajectory has been like that only. And we have also been telling The Street, people that, look, we are very focused on our cost of fund. And with the help of these 2 upgrades, and this is very significant to get 2 upgrades in 11 months, has really helped us to manage the cost of fund. I think you will see the NIM reaching the guided level in the next 2 quarters, then we will take a call that how do we want to go forward from there. As far as the cost of fund is concerned, I think Gaurav has in his commentary has mentioned that some of the large sanctions we have got even in the last 1 or 2 months, the rates are better. But still, we have to keep in mind the overall macro environment if -- suppose the regulator changes the rate, you cannot -- we will -- that will be out of our control. But we are doing everything possible to make sure that our cost of fund start -- is going down every quarter.

Sure, sir. And the data point, if you can just share the incremental yield and the cost?

Yes. So as far as the incremental disbursement yield is concerned, so it is near about 22.5. As far as the new sanctions or new cost of fund is concerned, so as mentioned earlier, that we are getting better commercial in comparison to the last quarter, which we have received.

Okay. So it will be lesser than 10.6?

So yes, obviously.

Okay. Okay. And my third question is on the asset quality. So I think you had already guided us that there will be some impact on the -- of the floods and everything on the collections. And I think your gross slippages have gone up a bit quarter-on-quarter, but it doesn't seem very alarming. So if you can just help us with the numbers on the gross slippages. And on the second part is the write-off that we have taken of INR 103 crores, now -- how do you see this write-off? So do you think that till now whatever needed to be adjusted on the book, whether it be because of the events or the interest rate impact has taken on the book. And now maybe going forward for the next couple of quarters, it will be like a more normalized run rate on these slippages and the credit cost?

So Rajiv, as we have mentioned in Q1, because of whatever the impact we have seen of the unseasonal rains and floods, so we have given a guidance that it will get stabilized post Q3, and that is what we are still saying on the same. That INR 100 crores write-off largely is a pre-April '21 book, where we have written off INR 34 crores from the pre-April book, INR 3.63 crores is from the restructured portfolio and INR 68 crores, INR 69 crores is from your post-April book. So if you see that overall, the collection on the starting buckets are getting better. And whatever we are trying to do, we are trying to create more coverage on the Stage 3 portfolio. And going forward, I think you will have a similar sort of write-off in Q3. And after that, in Q4 and onwards, you will see a normalized credit cost going forward.

And Rajiv, we are very confident that we will keep the credit cost less than 3%, and that's the traction we are now looking at as we have been mentioning that we are very consistent and calibrated. So we always follow a very prudent policy, and that's what we are trying to do. And going forward, we will definitely like the credit cost -- we'll give some kind of understanding of credit costs in the following years. But in this financial year, it should come down to less than 3%.

We'll take the next question from the line of Rajiv Mehta from Yes Securities.

Congrats on good numbers, and thank you for giving me the opportunity. So firstly sir, a couple of data points. What was the interest derecognition because of the write-off in the quarter? And can you also quote the collection efficiency for the month of September and October?

So the derecognition of interest from this write-off is INR 24.95 crores.

And Rajiv, on your point on collection efficiency, I can only tell you that if we break between July to September, I think September was better. We have already mentioned the collection efficiency for the 3 months, which is 97.6%. Even October is -- the traction is better. So you will see that in this quarter, it will be inching up.

Got it. And Gaurav, this question on Stage 1 coverage. So when I look at Stage 1 ECL, that is reduced in the quarter, so what is the thought process of reducing coverage on Stage 1?

No. It is, as I mentioned, that because the write-off pool is getting released from the pool, so the effort on the collection efficiency is getting better. And if you see from that I have already mentioned in the earlier statement, that my opening buckets are doing better. So that is why there is a release of that provision.

Okay, okay. Because I was coming from the view that maybe the management overlay that we are carrying of INR 62 crore, a good part of management overlay must also be sitting in Stage 1 provision -- as Stage 1 provision. And the management overlays actually increased. Would it be right that the management overlay will be largely sitting in Stage 1?

No, it is -- like if you see that my historical LGD is 65% for Stage 3, the coverage is at 76% -- more than 76%. Some part of your management overlay is sitting in Stage 3, some part in Stage 2 and some in Stage 1.

Got it. Got it. Just one last is your view on the NPAs. So we've seen a good reduction of NPAs, and the write-off policy has been accelerated. So the write-offs will remain maybe slightly elevated because of upfronting of policy. And with the flows and with the collection efficiency getting better as you are alluding, should our NPA levels by March come down further significantly? Can we expect that?

Yes. It will come down.

The next question is from the line of Umang Shah from Kotak Mutual Fund.

Sir, just one question on collection efficiency. I was just trying to understand the numbers a bit better. Collection efficiency has been improving on a quarter-on-quarter basis. But if you could just help us what is the collection efficiency ex of arrears?

So collection efficiency ex of arrear is around 95.5%. Our collection efficiency, Umang, is very clear whatever we are able to collect in the similar -- the current collection, which is around 95.5%. And with including arrears, it is 97.6%.

Right. So Devesh, sir, what I'm trying to understand is, so in the presentation, we can see that in pre-March, AUM, if I'm reading the numbers correctly, the collection efficiency is 0.3%. Obviously, that's a very residual negligible portfolio. And post March, we are showing as 99.7%, but the blended collection efficiency comes in at about 97.6%. So I was just trying to understand, is there some denominator effect in the blended collection efficiency number that we are looking at?

So which slide are you referring to?

Slide #8.

That's the composition of portfolios.

That is basically a composition of the portfolios.

So the portfolio pre-March is 0.3%, and the rest is 99.7%, which is post-April '21. That's a composition. That's not the collection efficiency...

I'm sorry. So what will be the -- okay, understood. All right, fair point. And so sir, ex of arrears, I mean, our collection efficiency at 95% still looks a little lower. Now I understand that there was a bit of a seasonality factor this quarter. But ideally, on a steady-state basis, how should we look at the collection efficiency should it improve and maybe move more closer to about 97%, 98% or it remains pretty much in this band?

So look, Umang, you're right. But one fundamental thing, which has happened after the COVID is, that there are clients, which are still disruption in -- some little disruption in the center meeting still remain. You have to go to the customer's house to collect. Also, if I can give you a broad understanding on the -- even if we look at our 90-plus, which is 2.12%, 40% is coming from 3, 4 states. We are working on some of these states. So the point -- and those 3, 4 states contribute, have overall 12% to 15% of our overall book. So we are calibrating our strategy in some of these states. I can tell you the states, like top 5 states, the collection efficiency is hovering in the same range, which you are talking about, 96%, 97%. So I think once we recalibrate some of our strategy in these states, which are giving us some pain, and other states, some of the new states will start coming up, you are right, you will see in the next financial year, we start reaching those kind of numbers.

The next question is from the line of Viral Shah from IIFL Securities.

Yes. I had actually 2 questions. So first is, did I hear right that the write-offs will be elevated over the next couple of quarters? And if you can guide us to what extent it could be?

So Viral, as we have already mentioned, it is not about that continuously a lot of quarters needs to be taken. But being we have changed our write-off policy in the last Board meeting post our Q1. So there would be another leg of write-off, which is coming in the next quarter. Beyond that, you will see a regular course of normalized credit cost, but it will not be as significant as we did in this and in the next quarter.

Okay. So but still despite that, you'll be able to deliver sub 3% credit cost for the full year?

Yes. Yes. Yes, that's what we are saying.

And this will be without any reduction materially in terms of your PCR?

Yes, yes. We are going to continue. And if option is being given, we are going to increase that coverage.

Okay. Fair enough, sir. And sir, second question was on the states that you were mentioning that are contributing disproportionately to the NPA. Can you give us the names of those states?

Yes, yes. These are Punjab, Haryana, Gujarat and Rajasthan. Out of this, I think, we are confident that the current number, especially in October, shows that Rajasthan and some parts of Gujarat are stabilizing. Haryana, Punjab still continue to give us some pain. We are recalibrating our strategy. I think you have -- I think we have -- what we have done in Punjab is split some of the branches. So it may look like that we have increased our branches in Punjab, but that's not the case. We have split the branches. We are putting -- we put more people. We have reduced the overall -- and we are focusing more on renewal of the current customers. We have a full policy. There's strategy in place, how do we, when we handle some of these states. So those are the states, which are giving us some pain. But we are very confident we will be able to recalibrate our strategy in these states. And with all other states doing very well, I think you will see an improvement.

Preempting the next question about the addition of branches in Punjab. The last question, if I may, would be on at the sector level in terms of the yields, we have seen these news flows around basically some concerns that the yields for, at least, the existing customers should gradually come down and the benefit of lower cost of funds by MFIs need to be passed on. So what would be your view on this? And where are we seeing in terms of, let's say, if at all, there is any regulatory action?

Yes. So I'll first try to answer, Viral, on the regulatory action. Look, in my understanding, and I have been associated with, as part of advocacy, as part of MFIN, if RBI took 11, 12 years to move from a rule-based regulation to principal-based regulation, the overall lifting of the curb on the rates is not only applicable for only NBFC-MFI, it is for all the banks and SFBs and NBFCs. Today, they are talking about registered entities. So one, I don't think that RBI will suddenly change the stance and come back and put some kind of caps. This is my personal view. However, they are -- yes, I mean, they are -- they would be engaging with individual companies wherever they feel that the yield, all the rates to the customer, all the optimization of the cost of fund or cost of operation is not being passed on to the customers. You have seen -- I have been saying this. The first time also when we went to The Street for our IPO that after the lifting of the curb, we have not boil the ocean. We have kept 3 things -- 3 stakeholders in mind, our shareholders, our customers and the regulator. And we are one of the lowest in terms of our cost of lending rate to our borrower. I have -- I will again reiterate, which I mentioned in the last quarter, is that once the pivot starts happening on interest rate, and we see that the rates are coming down, our operating expense also, we will -- we are very focused on the reduction of our cost of operations and the benefits, which will accrue. We will optimize our shareholder value and our customer and keeping the overall -- the sense of the regulator in mind. And that is the principle we have followed, and that is what we are going to do in future also.

[Operator Instructions] We'll take the next question from the line of Sumit Rathi from Centrum PMS.

Congratulations on...

I'm sorry to interrupt, Mr. Rathi, your voice is breaking, sir.

Is it? Just give me...

Also please be louder, please.

Am I audible now?

Yes, sir. Sir, increase the volume a little bit. I mean speak a little bit louder.

Yes, is it better?

Yes, please. It is fine now.

Yes. So sorry for this. Sir, just wanted to ask one question that if we see the competition, even companies bigger than ours in terms of AUM size are going better than us and even companies, which are slow -- smaller, they are also catching up with respect to growth, and they are also catching up with this number of INR 10,000 crores with the AUM, which we achieved this quarter. So sir, just wanted to understand what is our strategy on growth and what is our right to win over that? Are we facing competitive challenge? Or are we being extra cautious to remain -- to have good qualities of customers like that? So some color on that would be very helpful.

So look, I think you have to judge companies with how, over a period of time, they have done. We have a 13-year history. Look at our growth rate even during the COVID. So I think that is my one question. Good times, everybody, everything looks fine. However, we are not trying to race with someone. We have our own pace. We have our own understanding of the business. We look at our risk, our processes. So we are -- I'm not saying that we are cautious or anything. I think we are calibrated. We -- wherever we are seeing an opportunity, we grow. As I mentioned to you, in September, October, our run rates are very, very healthy. And we will be -- our growth will be mid-20s. We are -- and yes, you are right. We have -- even though now there are no caps for a number of borrowers, ticket size or for that matter, exposure norms. The only exposure norms is FOIR calculation. But we have still kept our -- all the caps internally as a prudent company. So we will focus on building a portfolio, which is a good portfolio, and maintaining NIMs and the yield. I think that is our more focus than just only growth. We want to have a very balanced approach.

The next question is from the line of Bhuvnesh Garg from Investec Capital.

Congratulations for good set of numbers. A couple of questions from my side. Firstly, on, sir, customer's profile. So if you can share some data on average size of the customers, and how it has changed this 6 months versus in March '23? And also that how many percentage of customers have more than 3 lenders as on September?

Yes, yes. Yes, I have this data. So I can give you some broad this thing. If you remember the March call, what we said was our unique customers to Fusion was hovering around 33%, 34%. It has come down to 31%. So there's a 3% drop as competition intensity has gone up. Customers, which are there, their relationship is -- other than Fusion, they have one more relationship is still hovering around 29%, 30% with 2 is around 20%, with other than Fusion, 3 is around 12%. And if you see 4 and above is still hovering between 5% to 6%, 7%. So there is not much change. Also, in terms of our unique customer, this time, what we have done is that we've taken a unique customers state-wise. So what we are seeing is that there are states where -- as we have entered some new states, which is now Karnataka, Tamil Nadu, the unique customers in these states are hovering anywhere between 13% to 15% to Fusion. However, our top 5 states, like, I can give you Chhattisgarh, it is still 42%. MP, currently, which are unique, is still 38%. Even for that matter, Rajasthan is 33%. Himachal is around 41%. Haryana is around 27%. Uttar Pradesh, as I mentioned, is around 37% to 38%. Uttarakhand, again, 36%. So the point -- Odisha is around 32%, 33%. So that is -- so that gives us a huge comfort that in our top states where we are present, because these are the states where there is still a lot of scope to grow. The unique percentages are still very, very healthy. But yes, if you were to enter now in Andhra and Telangana, you will have a very high percentage of unique customers. So I think that -- these are some of the -- and retail overlap still remains -- what is the retail overlap on this thing -- is around 24% on our book. But that has moved because we have entered some of the mature markets, like Andhra, Telangana or Karnataka, Tamil Nadu, where you know that all other products, these customers also take other products. But overall, composition has not changed much. I hope I have answered your question.

Got it, sir. Understood. So just a clarification on retail overlap. So what does this mean exactly?

What I mean is that customers, which are at a household level, they have other loans other than micro finance loan. They may have 2-wheeler loan, gold loan, any other personal loan or a home loan. So that is what I'm talking about.

Okay. And how much it was, say, on March '23?

It was around, I think, 20 -- 20%.

Okay. Okay. Fine, fine. Understood, sir. And sir at bureau level, so since we have data state-wise, any specific trends in terms of asset quality for the states of UP and Bihar, particularly in Bihar, where there has been some noise around the customer leveraging coming high. So any trends at bureau level?

No, no, I don't think there is anything like this, because let me tell you that I have also personally traveled to Bihar. I think one thing, which people are missing in Bihar is that Bihar also -- Bihar economy is also accentuated by a lot of domestic remittance. If you today see, the highest domestic remittance goes to Bihar. People who work out of Bihar, they send the money to their household. So I don't see any such thing in Bihar, and there are no such trends.

Got it. Got it, sir. And in terms of our credit costs, so you mentioned that it would be less than 3% for March FY '24? And then what -- and what will be for, sir, on steady-state basis, FY '25 and...

Steady state, we'll give some guidance, but yes, we would definitely like to reduce it. We'll some guide -- we'll guide you in the next 2, 3 quarters.

Okay. And sir, last data-related question from my end. So how many branches you said that you will be opening this year?

160, 170 additional branches, we'll open this year.

Okay. In H2 or in total FY?

Overall. Overall.

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Just one question. While you have already explained this forward flows during the quarter was predominantly because of the unseasonal rainfall and flooding. If you could just elaborate that a little bit more because the forward flows into Stage 2 and Stage 3 are higher than what we've seen for the other players. Would you attribute that predominantly to the geographical mix that we have versus some of the other listed players? And the other thing is that, I mean, is it predominantly flooding that is kind of leading to this? Or is there some genuine stress that you are seeing in rural India? This is something that I was trying to understand.

Yes. So first, I can tell you there is no genuine stress in rural India. I have personally traveled to 4, 5 states in the last 2 to 3 months just to understand how the trend is on inflation, impact of inflation, our customers' income sources, how are they borrowing, how are they -- what are their economic activities. So I can tell you, and now you see even 2 days back, Mr. Modi has said that the Garib Kalyan Anna Yojana has been extended to another 5 years, which directly benefits the customers, which we serve. And really take out the inflation part as far as the food is concerned. So I don't see that. As I mentioned to you that there are 3 -- after COVID, we have seen 3, 4 states, which we mentioned, Punjab, Haryana, Rajasthan and Gujarat have not come up -- come back the way other states have come back. And then this whole nature's fury, which is the unseasonal rains, which impacted all these states, along with some portions of MP, UP, Bihar and all that. So that is what we are trying to say that, yes, they were already -- we were working with the clients in some of these states, especially the 4 states, and then they were hit by these rains. So the recovery has got prolonged. Otherwise, there is no such issue. And as I have mentioned earlier, we are working with these clients. Our portfolio concentration in some of these states is -- overall is around 12% to 15%, not a major worry. And you will see the next 2, 3 quarters even improvement. And we will recalibrate in some of the states. We may decide not to go in 1 or 2 states. So we'll recalibrate our strategy, in which we are internally discussing. But we are on the top of the situation, and we do not see anything systemic here.

Okay, sir. Sir, just one follow-up, which then means that it is fair to conclude that at least your top states of Bihar, UP and MP, you're not seeing anything unusual or any stress there?

No. Nothing unusual. And I have also mentioned that you know if you remember, I have been guiding on -- I can just additionally mention there, I've been guiding that even the top 3 states, all the state elections, 3 states were significant for us, which is Chhattisgarh, MP and Rajasthan. Chhattisgarh, I think, polls are happening today. So model code of conduct is already in all the other states. There has been no impact of elections, and state elections are critical for us. And I have been saying this that as a sector also, we have been working, but there has been no impact.

Okay, sir. And sir, just one last question from my side. You have long advocated a lot of consistency in your delivery. I mean whether it be a steady improvement in asset quality and the way in which you kind of want to grow your franchise. Given that I mean, at least, due to disbursements, I believe we're a little bit impacted because of unseasonal rains. Can we now expect that, I mean second half of this fiscal year, you look to accelerate your disbursements a little bit to get to this mid 20s kind of an AUM growth this year?

Absolutely. I've already mentioned our run rate for September, October is average INR 850 crores. Even though this month, initially, we just started a good traction. So yes, we are very, very confident that what we have been guiding mid-20s growth will happen this year.

The next question is from the line of Himanshu Taluja from Aditya Birla Mutual Fund.

Sir, just 2 data keeping questions. One is the write-off since you've changed the write-off policy from 360 to 270-odd days. What was the impact of the quarter because of this change in the accounting? And I think this -- you have changed the last quarter. So if you can just give what was the exact impact of this?

So Himanshu, well, as we did it in post Q1. So Q1, you have seen a write-off of INR 59 crores. And now you are seeing slightly more elevation because of the policy change, that it has tune to near about INR 42 crores extra write-off, which we have did in this quarter.

Yes. And sir, the second question is, since you mentioned the collection efficiency of 95.5 and including the arrears is 97.5 and 6. So can you just give what was the exact denominator in the computation of 95.5. The idea is to understand whether it includes one of -- obviously, does it include the GNP? Also, you have some bit of write-offs as the part of the denominator in the computation of 95.5. What was the exact denominator?

So look, Himanshu, as far as the current collection is concerned, the denominator is very simple. What was the current demand for that one? That's it. It does not include write-offs. That is one. When we talk about arrears is basically any overdue for previous months, which we collect includes overdue. Yes, any recovery from the write-off will also be part of overdue only.

The next question is from the line of Pranav Gupta from Aionios Alpha Investment Advisors.

Congratulations on the good set of numbers. I'm referring to slide on branch vintage. And thank you for the disclosure. It really help us understand the context of growth. But just looking at a more longer-term perspective, you mentioned that the near-term growth was slightly impacted because of floods. But if I look at, say, 2 or 3 years hence, should one assume that the -- the increasing vintage of these branches that are less than 3 years, that benefit starts to flow in and the growth can be above industry for the next couple of years? Is it that a fair assumption to make?

No, no. Because we will always -- like if you see, we'll always add more branches, no Pranav. We'll add more branches. So we have split 100 branches in 2.5 years. So it's not that if you see -- if you look at the same slide, March '22, less than 1 year, 190 branches, which is now 100 and then look at the POS contribution. So we will always keep on adding branches. Also, you see right now, our branch, if you compare us with the leader, our overall RO handles, the field officers, the AUM, which he handles is 1.4. There is a scope to grow there. So all these things still will play. I don't think that is a fair assumption.

Sir, actually, I was coming from the context that when we see the vintage on March -- as on March '22, we've seen the POS contribution from the 1 to 2 and 2 to 3 year branches grow significantly. All I was trying to understand was that going forward, would this also continue to contribute in terms of growth and in terms of operating leverage? Obviously, I appreciate the fact that we will continue to open new branches and that will be an additional...

These are also because you see if you see the bulging between 1 to 2 years, it was 119. So from 190, the next bucket move was 119, but this is from 100 to 233. So you see the bulging between the years between 1 to 2 and 2 to 3 years is because of that only, Pranav.

Absolutely, sir. The second question is in terms of your credit costs and write-off. So you mentioned that you're confident of keeping the overall credit costs for FY '24 below 3%. Is it fair to assume that the impact of all of this change in write-off policy that happened last quarter, it should sort of settle down by March '24. And then from March '24, given that the new write-off policy has settled and the impact of these floods that has happened this year will also have settled. Is it fair to assume that '25 could see a significantly low credit cost?

Yes, Pranav. That's what -- it's a very fair assumption. That's what is our endeavor will be directionally.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Gaurav Maheshwari for closing comments. Over to you, sir.

So thank you, Mr. Devesh. So thank you very much and a very, very happy Diwali to all of you.

Thank you very much, sir. Thank you, members of the management. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.