Fusion Finance Limited (FUSION) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Fusion Micro Finance Limited Q1 FY '25 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.

Good evening, everyone, and welcome to the 1Q FY '25 Earnings Conference Call of Fusion Finance Limited. From the management today, we have Mr. Devesh Sachdev MD and CEO; Mr. Gaurav Maheshwari, CFO; Mr. Tarun Mehndiratta, CEO of the MFI Business; and Mr. Deepak Madaan, Company Secretary and Chief Compliance Officer. As always, we will have opening comments from the management team, post which we will open the call for Q&A. With that, I'll now transfer to Mr. Devesh Sachdev for his opening comments. Over to you, sir.

Thank you, Sameer, and JM Financial for hosting us. Good evening, everyone, and thank you for joining Fusion Finance Q1 Financial Year 2024-25 Results Conference Call. As Sameer mentioned, I'm here with my colleagues, Tarun, Gaurav and Deepak Madaan. I would like to cover key business highlights for the quarter, followed by some of the challenges we are recently seeing on the ground and actions we are taking to address the same. Also, in line with our conservative approach, we have increased our provisions early in recognition of some of the risks, I would also cover this in detail. I would request you to keep the presentation handy. Our disbursements in Q1 have remained steady at INR 2,987 crores compared to Q4. Our active borrower count has increased by 8.44% annually to reach around INR 39.5 lakhs. Our ticket size over the last year, as we have guided has grown by around 9.5%. And still, we have one of the lowest outstanding per customer at the sector level. We front-loaded our branch opening since financial year '25 with 101 branches opened in Q1, which takes the total count to 1,398 branches. 50% of these branches were split branches. Our NIM remained stable at 11.6%. We saw 19 bps reduction in marginal cost of borrowing. OpEx for Q1 saw an increase on account of new branch openings and annual increments. This should normalize in the latter half of the year. Our PPOP was healthy at INR 297.75 crores. Now I would like to talk about some of the challenges we saw on the ground. Since last 2, 3 months, we saw slight moderation in collections with a concerning trend in some pockets, consequent to which we did a deep dive into our customer data that pointed towards an increasing customer-level leverage and corresponding impact on the retail behavior, JLG discipline, et cetera. During the same time, MFI practitioners deliberated the situation with MFIN and post-consultation among its members, MFIN came out with a set of guardrails targeted towards calibrating customer leverage and bringing lending [indiscernible] among the MFI. And this was then adopted by all the members. In our opinion, this would balance out the growth in the sector and we're hopeful of a positive impact over a period of next 2 to 3 quarters. Given the trend, we had detailed discussions with our business service team on the potential flows from the impacted clients. Basis this, the management took a call to recognize early the potential impact of rising flows in the financial, which you will notice is reflected in our Q1 credit cost. To explain some of the trends we are seeing in more detail, I would like to draw your attention to Slide #8 on our customer leverage. As you can see, our outstanding per customer is mostly below INR 40,000. But 33% of these customers have outstanding credits in INR 1,00,000 across micro finance loans. This is an increase from 23% in March to 32% March '24. Also, the customers which are having more than 4 [ relationships ] have increased significantly. This is primarily to the fact that many of our on-boarding customers have gone ahead and taken 2 or more loans and consequently, the leverage levels have gone up, and in some cases, to levels beyond their repayment capacity. We saw the impact of this on our portfolio as some of our leveraged clients were unable to service the installments even after multiple follow-ups. As I mentioned, we have the rising customer leverage impact on collection, MFIN came out with a set of guardrails to control the over-lending to customers, which has restricted sourcing of customers already having 4 lenders and also those having microfinance loan outstanding of more than INR 2 lakh. Fusion's existing policies already had both exposure and lenders cap, but this step will help it maintain the frame at industry level, which will benefit all the players. Another important trend, which we highlighted in our investor meeting in May is that post-COVID, the center discipline has been impacted. This is leading to higher cases of door-to-door collection and dip in collection efficiency. We have also seen customer migration in last 2 months in some of these pockets. As we mentioned in our earlier calls, for sustained improvement in center discipline, we have rolled out a customer loyalty program across more than 100 branches, and we intend to scale it up over the medium term. This initiative is already showing some early signs of success. We have also seen because of the tough working conditions in the last 2 months and door-to-door collection, the attrition in some of the geographies has been higher. In our investor meet in May, we had spoken about the K-shaped recovery and we are witnessing the same with some segments doing well and some still struggling. As the on-field dynamics are evolving, we as an agile organization with a seasoned team on ground are confident of navigating this dynamic situation. Slide #11 captures some of the steps we have taken in this period. We are calibrating our disbursement in line with our portfolio risk assessment. We have stopped said disbursements in 104 branches. We are further tightening our customer onboarding criteria. Our incentive structures have been revamped with more alignment with collections. Over the last few years, we have been guiding that the load of the field officer has been rationalized. Now it is around 450, and I think this should start affecting in better numbers. Dedicated collection team and tele-calling infra has been strengthened to take care of the flows into the harder buckets. Slide #9 captures the retail break up of credit cost the higher than usual slippage in our portfolio calls towards a later part of June led to increase our steady state credit cost to around 1.28%. Also, as highlighted by me in view of the continued slippages, we have proactively moved INR 221 crores of our portfolio pertaining to 55,000 customers from Stage 1 and Stage 2 to Stage 3, using filters, which include collections received in recent months, central meeting attendance, leverage levels, performance with other lenders, et cetera. This early recognition of risk and consequence provision has increased our credit cost by INR 141 crores in quarter 1. Here, I would like to add that this portfolio is across geographies with higher impact from Tamil Nadu, Rajasthan, Odisha, MP and Jharkhand. Also, post our annual review of ECL model, we have tightened the coverage. This is updated through a recovery data. This has added INR 66 crores to our credit cost in Q1. Moving to a quick update on our MSME book. Our MSME book grew by approximately 8% quarter-on-quarter to reach INR 570 crores. The focus continues to be growing the secured MSME book over the medium term. And we are very happy with the way it is developing. Our balance sheet remains robust with diversified liability profile, healthy ALM and capital adequacy of 25.6%. To sum up, we remain watchful of the situation on ground and remain hopeful for improvement of performance in Q2. We expect to bounce back to normal business performance expected from us from Q3 of financial year '24-'25 with both our initiatives and industry-level steps start feeling results. We continue to remain focused on our path to create long-term value for all our stakeholders. With this, I hand over the call to my colleague, Gaurav. Thank you.

Thank you, Devesh. Good evening, everyone. I would like to speak about some of the key highlights for Q1 FY '25. The core interest income of the company grew by 7.85% on a quarter-on-quarter basis and 29.70% on a year-on-year basis. The total income has also increased by 4.67% quarter-on-quarter, and 27.84% on a year-on-year basis. Our marginal cost has further reduced by 19 bps on a quarter-on-quarter basis and 69 bps on a year-on-year basis. We will continue to work on optimizing our cost of funds. We expect to maintain the cost of fund or margin cost of funds at the similar level. Average cost of funds has decreased by 48 bps on a year-on-year basis, and 9 bps in comparison to Q4 FY '24. Net interest margin has also increased by 5 bps to 11.64% from Q4 FY '24, which was 11.59%, and 75 bps on a year-on-year basis. The operating cost has also increased by 15 bps, but that is largely contributed by opening of 101 branches, strengthening of collection team and also rationalization of client per relationship officer metrics. Operating cost of MFI business is 5.90% and MSME business contributed 0.38% for Q1 FY '25. Cost to income stands at 38.39% in Q1 FY '25. The pre-provision operating profit is INR 297.75 crores, increased by 26.49% on a year-on-year basis and 2.43% on a quarter-on-quarter basis. The profitability in the quarter was impacted by early recognition of risk in the portfolio and strengthening of ECL methodology. Would request all of you to refer Slide #9 for detailed working of elevated credit costs. The net credit cost for Q1 FY '25 is 1.28%, excluding the impact of stage movement and ECL strengthening. As per company's early recognition and conservative provisioning policy, we have moved these customers from Stage 1 to Stage 3 and some customers from Stage 2 to Stage 3. These customers are having an exposure at default of INR 221 crores, this stage movement has a credit cost impact of INR 141.5 crores. Apart from the above, basis of our annual review of ECL model, we have also strengthened our retail methodology, it has an additional impact of INR 66.03 crores. The ECL as on June is INR 644.06 crores, which includes INR 59.50 crores as management overlay. The overall coverage for Stage 3 without stage movement is 134%. We have done write-off in this quarter of INR 58.40 crores, which is 0.54% of the closing portfolio. We have derecognized interest of INR 11.85 crores in this quarter. The gross NPA stands at 5.46% and net NPA at 1.25%. Without stage movement, the gross NPA stands at 3.44% and net NPA of 0.48%. We have done direct assignment amounting to INR 479.49 crores in quarter 1 FY '25. The DA outstanding as on 30th June is 10.48% of the AUM. We would like to continue the same subject to market conditions. In this quarter, we have also closed $25 million facility from DFC, which is in sync with our strategy of having various source of funds, and diversify our liability mix. CRISIL has also assigned commercial paper rating of A1+. And as of 30th June, we have sanctioned in-hand approximately INR 2,400 crores. Thanks. Now we can open the floor for Q&A.

[Operator Instructions] First question is from the line of Pranav Gupta from Aionios Alpha Investment Advisors.

Just a few questions on this credit cost policy change. The first being, you mentioned that there has been some tightening on the ECL model. Is this just in line with the annual review that is done? Or is this done specifically based on the conditions that we have seen in this quarter? And what is the PD, LGD assumption changes that have been made that has led to this additional INR 66 crores of impact? That's the first question.

So Pranav, this is an annual exercise, which we do with our auditors and the risk model which we have in place. And the adjustment which we have done in our PD and LGD, where we used to take 5 years average, now we have shifted to 3 years average. It has -- because it has a period of COVID period. So slightly that elevation of LGD has come up in the picture.

Okay. And going forward, obviously, this will be renewed again on an annual basis?

Yes. Absolutely.

Sure. So the second question is on the recognition that we have done based off of the impact that we have seen on the ground. This additional recognition of INR 221 crores of the 55,000 borrowers. Could you sort of break them up into how many of them were in Stage 1 and how many were in Stage 2? And also additionally, this increase of borrowers having more than 3 or 4 loans in addition to Fusion, I would like to believe that this would be more of a gradual increase rather than happening only in 1 quarter, where Fusion+4 has gone from 4% to 9.6%, Fusion+5 gone from 1.4% to 6.2%. Why is this step so drastic in this quarter? And what have led to this decision-making apart from some of the additional steps that we saw on the ground?

So approximately 48,000 customers have moved from Stage 1 to Stage 3 and near about 6,500 customers have moved from Stage 2 to Stage 3. Now coming to -- so Pranav, you're right. So we have always been saying it's a K-shaped recovery. We have also been highlighting that there are certain geographies where credit cost has been elevated, and we are watching it very closely. You are right that it is not that the customers suddenly are taking more loan. However, the flow which we have seen from what we were seeing in the customers going to the next bucket, that was -- and especially with some of these customers, we have seen that their behavior with others because there was no payment which came even in July, that is the reason and then we looked at and this could be -- this could have extenuated because of the macro environment we had in the first quarter. So we believe that it is too early for us to really tell you that whether this is transient, temporary, we are taking steps. But I think as a company, we always are very, very prudent and early in terms of recognizing, we have our own risk model. One more thing which we have seen is that some of these customers have taken loans, not from MFI but also from consumer lending, fintech lending, that also has happened, especially when we look at this cohort, that was a trigger point. We had a discussion that this is a customer where there is the overall likely of default will be high. So that's why we said that let's recognize it early. However, you're right. We have been seeing some of these trends, but they were not very concerning, though we have always been talking about it. But this was something which we saw, which was slightly concerning. So that's why we took this step. We had a very detailed discussion on this even at our Board level. We are -- it's not that we are saying that we will not follow this customer. We are strengthening our collection team. We have changed our model in terms of how many collection officers we need. That is now -- we are actually relooking -- relooked at that number, and we are putting more people there. We are -- as I mentioned to you, we are very focused on tightening our, as I mentioned, sourcing Earlier, as per our policy, suppose a customer, when we are onboarding a customer and the customer has been in the last 6, 8 months, even up to -- it has gone up to 60 days DPD, but has come back, we could still consider. We said okay, fine, the customer has come back, he has been paying. But now we are saying that from 1st August, we have put up a policy where we say, okay, customer -- if it has gone beyond 30 DPD, we will not onboard that customer. So we are doing a lot of calibration there. So yes, it is what it is. We are seeing the ground. We are seeing some data points. And I think we'll be decided as a management that we should call out this thing early. And that's the approach we have taken.

Just one more thing on this bit. You mentioned that 48,000 of the 55,000 customers are in Stage 1. It will effectively mean that they're probably missed only their June EMI, right? Just to understand this better, I mean looking at one EMI obviously in addition to all these other leverage factors that you mentioned have prompted us to sort of forced these guys into Stage 3 directly from Stage 1. Does this sort of not indicate that there is a low -- extremely low chance of these really sort of paying back? Or what has actually pushed these customers to not pay at all? Because if I look at some of these geographies, some of these geographies, namely, Tamil Nadu, which has been -- which has faced floods, Rajasthan which faced intense heatwaves and Jharkhand where we saw the farm loan-waiver issue come back again. Are these nonpayments linked in any way to these factors as well? Or is it only over leverage?

Yes. So Pranav, if you just refer to Slide #9, where you are absolutely right that in Stage 1, they have paid June installment or partially they have paid in June, we have written that subsequently, they have missed their payment in July also. So it is written on the Slide #9. And when we have checked the CB data also, they are quite leveraged and the number is 6, 7 lenders and beyond. So apart from that, the center meeting attendance is also very low on that particular group. And they have -- what other concerning thing which we have seen is they have defaulted with some of the other existing players where they have exposure.

Next question is from the line of Renish Bhuva from ICICI Securities.

Sir, just two things from my side. One on the clarification side. So when we are moving these customers from Stage 1 to Stage 3, how would ECL model gives that flexibility? Because if any account is not passed a 90-day DPD, how the ECL model will allow us to classify in the Stage 3?

No. So we have discussed this thing with our auditors, and they have allowed us to move that customer because of the default coming into their credit bureau with the other players which they have exposure with. Apart from that, the repayment which we have shown in June and July, that has also become 1 factor. Apart from that, the center meeting attendance because largely, these are the customers who were second factor and number. They have a credit history with us. So still, we were able to see that they were doing a payment but slightly with a lag. So we can just assess that, and we can just discuss with the auditor to pass into from Stage 1 to Stage 3. Similarly, if you see in the last year, when we have done this movement in Stage 3 also in December quarter. That was when we called out the Punjab.

So I mean then the ECL model does allow the subjectivity? Is that a fair assumption? Because, let's say, in 1 quarter, if you are recognizing this customer under Stage 3, despite bouncing only 1 EMI and in next quarter, this another customer just bouncing 1 EMI and if you continue to show on the Stage 1. Does that flexibility if it allows?

ECL is an accounting model and it gives a provisioning on that particular loan. As far as their customer CB record is concerned, so they will still be classified as Stage 1 or Stage 2 where they are. So it is only a provisioning which we have shifted, nothing beyond that. So ECL model gives you flexibility to create more provision while moving from Stage 1, Stage 2 to Stage 3 or even if a customer, who was in Stage 3 and he has given me 4 payments, subsequently, we can move that customer to Stage 1 also to get an upgradation.

I will take this offline. My next question, again, on Slide #8, where we have given the customer base position. So region Fusion+4, 5 and more than 5 is almost 20-odd percent, as on March. And as on Q1, if you can tell us what proportion of this customer base has already been recognized because when we look at the gross NPA, it is at 5%. So even if I assume, let's say, the entire 100% is coming from this Fusion+4 category who, in a sense, could be termed as over leverage. So what part of that is still left on the book as of June, '24?

Yes. We -- because Renish, the Credit Bureau has still not given the data. Once the data comes in, we can -- we will share with you. However, I think what you're assuming is that, okay, if there are customers which are more lending institution other than Fusion. And all of them will be like this. I don't think that is the right supposition. It is basically, we have looked at geographies, at certain pockets, certain customers, their behavior and their credit history and their behavior with others. That is where this has come out.

No, no. Of course, I mean not everyone will default sir, but I'm just trying to get a sense that if one has to assume that Fusion+4 and more than 4 lenders, will you be having some sort of leverage. So then the incremental stress in Q1, ideally stood flow from that pool. So I'm just trying to better sense. Anyway, my last question is on the credit cost part. Of course, we have been guiding at around 3% of steady credit cost plus the overlay. Does that guidance still holds to -- I mean, if I just have to strike of the Q1 numbers?

It is -- right now, we do not want to say anything on this. I think we will -- what would be the credit cost, we have to just see how this Q2 pans out, then only we will be able to say anything. Our institution is slightly dynamic and fluid so we would not like to say anything. I think we would like to see the situation, handle this thing and let's see how this stands out.

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

Thank you, and good evening, everyone. Sir, again, kind of circling back on asset quality only. First of all, thank you for always guiding us well ahead of others, I would say. I mean, you've been guiding for something like this for the last few quarters. And probably you are among those few who are suggesting that what you're seeing today in the sector is because of higher customer leverage, and you've also shared data to that end. Sir, what I wanted to understand is, I mean, while there are other players in the sector who, during the quarter, attributed some of it to, I would say, elections, heatwaves and maybe even attrition. But while you acknowledge that over-leveraging is the main problem, I mean, don't you think that going ahead even in 2Q, the things are not going to improve because today, we are talking about 55,000 customers who moved and whose payment behavior is circumspect. Given the kind of leveraging that has happened in the sector, and again, referring to the earlier participant's question, given that almost 24% of our borrower base are having 5 or more loans. Do you think going ahead, we will continue to see more forward-throughs?

Yes. So I will first like to mention this that thank you. You know, I think everyone has to appreciate that this MFIN has brought these guardrails and everyone has signed it because people felt that over-leverage is happening. So that, I think one effect, one has to accept it. Second is, you're right. So we have mentioned that some kind of these macro environments you mentioned in Q1, they may have exchange [ rated ]. But all this is -- we have seen it's more because of the over-leverage had any small disruption in customers' life and if the customer is overleveraged, this kind of situation happens where the customer livelihood gets impacted, and the -- she starts defaulting. So we have seen that, so -- but as I mentioned to you, situation is slightly more transient, and we are watching it. We, right now, are not in the position to tell you whether the -- we are taking steps, and we are hopeful that it will improve. Also, overall, I think everyone is calibrating the growth. Once this guardrails are implemented at each, everyone starts doing that, you will see some kind of sense coming back and customer leverage going down. But also, we believe that we are an old player. We have the team. We have the system risk and everything. We are taking steps. As I mentioned to you, in 104 branches, we have stopped disbursement. So we are calibrating our hard growth also in some of these geographies. We have not increased our -- in terms -- we are not growing very fast. I can give you some sense here that our 25%, 30% branch expansion has happened over the last 6 to 8 months. Also, our RO, the field officer, rationalization has helped in reducing the burden by around 20%. So I think these are steps we have taken, and then we are also increasing our collection team in tele-calling infra. I believe that this should -- this will start showing results. Also, I think in this case, we have been slightly more prudent so that we could see some kind of trends, and we thought this is something where we should call out early. But I think we will be able to tell you more in more clarity where -- how things are moving in the next quarter. We would like to watch the situation in the next 2 months to really see what kind of improvement which is happening and what is happening with the customer, how the customers are. So you will have to wait for 1 more quarter. Door-to-door collection also been a problem with this sector. We are doing a lot of work on working with the clients on center meeting. So all that -- if you remember, we have mentioned about it in the May, Analyst Meet also. We believe that some of these steps will start showing results. And coming back to some of the customers who are -- where we are seeing more relationships are after -- have increased to a level where it is becoming concerning, we are taking steps there. We are engaging with those customers, separate tele-calling is happening and -- so a lot of steps are being taken to make sure that those are -- these things are arrested. We are still hopeful that though we have earmarked these customers in Stage 3, that maybe we can -- we will be doing all efforts to make sure that we start recovery from these 2 -- these customers in the next 2 to 3 months. And so -- but we will give more clarity in Q2.

Okay. Sir, just a small follow-up on what you just responded. Sir, there are two things that happened. One is, I mean, you over-lever a customer and then that customer is not able to repay. The other thing that also happens is maybe the income of the customer goes down, the income of the customer is impacted. Have you had a chance to do some analysis around was there -- is there also an impact on the income of the customer?

Yes. In some of these geographies because of the situation, which happened in the Q1, this could be a reason. But again, I'm saying we have seen in the past, now monsoon should be good, there will be more money -- elections are over, there will be more money in the hands of the customers. There were seasonal migrations. They should start coming back. So I think all this will play out. We will -- we have to really be watchful, and we will do these kind of analysis more, and we can share with you in the next quarter.

Got it, sir. And sir, just one last question that I had, these steps that we have elaborated on Slide #11, actions taken by Fusion. Since when have they been incorporated, these actions that you've taken or steps that you've taken?

If you see the disbursement calibration has already happened in July. We have -- we stopped disbursement in around 50, 60 branches last month. We have other -- stopped another 40 branches this month from 1st August. New customer sourcing criteria has been tightened from 1st August. The rationalization of customer handling at our level has been going on. Incentive structure has also been aligned from 1st August, and collection team strengthening has already happened. We have added, last month, 50 more people in the collection team. If you remember in the Analyst Meet, we mentioned that a very senior guy we have hired. He's also joining on 20th of August. And then we are increasing -- more than 100 people will be added in the collection team in this month, August only. So these are the -- so this is where we are in terms of the steps we have taken.

Okay. Sir, why I asked you this is if you look at other peers, they have already calibrated their disbursements in the last quarter itself, April to June. And to that extent, you should see their portfolios had not grown. They were flat to a minor decline. Why is it that despite being so prudent and only recognition, you choose to wait, let's say, until July or August to take these steps?

So Abhijit one, if you see our disbursement trends, they are very consistent. So -- as I mentioned to you that still there is -- demand is very robust. We have actually calibrated our growth because I can give you -- if you look at the sense here that the last 6 to 8 months, we have added close to 25% to 30% to our branch network. Even in the first quarter, we have added 100 branches, out of which 47 branches are split. Our calibration of the ROs has been happening over the last 6 -- 4, 5, 6 months. If I can tell you in terms of number of applications which we are disbursing, the average is still hovering between 200,000 to 215,000 applications per month. Keeping in mind that in the last 6, 8 months, the infra has gone up by 25% to 30%. But in spite of that, the number of applications have not gone. So already calibrations have happened, Abhijit. It's not that -- you have seen, we have not changed in terms of ticket size. It's only 9%, 10% here and there. So that is already happening. So it's not that we are now -- what we are trying to do is now we are looking at more branches where the calibration can happen. But overall, I think in terms of our capacity, we can do even 25% to 30% more than what we are doing for the last 2 quarters. And we have been consistent. I would not like to say anything about others, but I think we have calibrated already. You can look at the number of applications.

Next question is from the line of Raghav Garg from AMBIT Capital.

I have a few questions. One is your total net slippage seems to be about INR 360 crores for the quarter. What part of this came from Bihar and U.P.?

Yes. State-wise split. But I can tell you, Bihar and U.P. are gearing very well. There is a slight elevation here and there. But otherwise, we do not have any such concern from Bihar and U.P. But Raghav, the INR 350 crores of slippage is inclusive of INR 220 crores of shifting from Stage 1 or Stage 2 to Stage 3.

Right. So what I -- my only purpose was to understand whether Bihar and U.P., how much are they contributing to the overall stress formation? That was the only point.

These customers, 55,000 customers, Raghav, which we have moved, 95% customers are from these states which you've highlighted.

Understood. The second question is more from a clarification perspective, that in terms of your funding arrangements, given that you've done a loss for the quarter and where your NPAs have reached, you don't anticipate breaching any of the covenants to the extent that there is a substantial increase in cost of funds or any particular funding line stock? Is that understanding correct?

So Raghav, there is a breach of covenant on a gross NPA. But on the 90 plus, there is no breach. But having said that, the kind of a relationship which we are having, so we don't think so that there would be any funding issue for going quarter. And if you talk about like we are carrying some INR 1,600 crores of liquidity with a sanction indent of [indiscernible]. So I think that is good for good to go. And we are not anticipating anything from the lenders. There are very few lenders that we have this comment, and we are on top of the situation.

Understood. Just my last question. Why have you increased your ticket size in this quarter despite seeing a higher stress formation. I believe what we understand is that given the controls that you would have put in place, ideally the ticket size should not increase or probably it should go down.

Raghav, we have not increased the ticket size, ticket size was increased previous quarter. This quarter, disbursement has happened more to our mature customer. That's why you see that happening. So we have not increased any ticket size this quarter. The breakup would be in the new and the existing. There, the tilt is more towards the existing. That's why you see that it's looking like [ 46]. That is the reason. We've not changed anything.

Just one last question. You've done a fair bit of provisioning in this quarter, and there is about almost INR 600 crores of GNPA, which is outstanding. Assuming a steady state ECL cover of 3%, 3.5%, do you anticipate that you will may end up making a loss in this year? Or do you think you'll be much better than that?

No, no, really much better than that, really much better than that. You will see the improvement happening in the next quarter and then normalizing in the industry. Really much better than that.

Next question is from the line of Shreya Shivani from CLSA.

I have two questions. Sir, the Slide #9, I think, it gives a lot of data particularly about those 55,000 customers. So some of the states that you have mentioned, like Tamil Nadu and all, do you think that the overlap or the over-leveraging is only happening because the customer has multiple more MFI lenders? Or are there more of these other lenders who are lending to the husbands of these women and those are the bigger concern than the same women going to 5 or 6 lenders? That's my first question. And second, on the branch addition. Are we going to pause right now? What's going to be the plan for that? Any color you can give around that?

Yes. First, on the branch addition, right? We have added 101 branches. We have some more in the pipeline. Mostly, Shreya, it is basically, the split branches. As we have been mentioning that if a branch reaches more than INR 15 crore portfolio, we spilt that. I think we already have 1,398 branches and 40, 50 branches, which are already is open. Otherwise, we are done for this year. Coming to your first point, look, right now, we have also seen that the retail overlap has gone up in these micro finance customers, especially if I look at the south, it's around 61%. North is still at 20% -- 15% to 20%, 20%. I'm talking about overlap on our customer base. But you're right, there could be a situation where these households have got indebted. We are -- look, overall, we are -- we look at the overall indexes as per [indiscernible], but it is early to say. Right now, as a sector, we can only control the variable which we have a control, which is as MFI and the banks and the small finance banks, which are members of MFIN, everyone has agreed for this guardrail. So I think I will -- we have to still wait for next 1 or 2 months to see where, how this is panning out. And I'm hopeful that this will -- overall situation may improve because [indiscernible] unsecured loans to the household overall, all the players are not talking about MFI and talking about other sectors. There is already -- must be a regulation on the risk for weightage for unsecured. And all these other players which are not under the regulatory landscape is also trying to control some of these factors. So I think that should help in making sure that the customer does not get -- or the household does not get overleveraged.

Okay. So just a follow-up on that. So why we're all probably just focused on RBI making these commentaries on the lending rates of MFI, for which I know, Fusion as the company is probably one of the lowest rates out there, but maybe there could be some actions from the regulator on this matter that you are raising today? Or has there been any discussion that you've had with the regulator on not just over-leveraging due to multiple MFI lenders, but also due to those retail lenders out there. Is that a risk going ahead? Or have you had any discussion with the regulator right now?

Can you repeat the question, please?

Okay. So what I'm saying is that most of us are probably concerned with RBI looking at lending rates of the MFI sector, right? But this over-leveraging of the issue, particularly with the retail overlap that you're talking about, has RBI had any communication with any of you all? Or do you expect that this risk or regulatory risk because of this factor is increasing for the overall ecosystem as such?

No, no, we did not have -- we have been highlighting through our MFIN association that to control some of these entities which are not part of the regulatory landscape. But otherwise, there's no such discussion. I think as a company, we need to -- everyone has to improve their risk management and onboarding. And if we -- all the players come together, we'll definitely make a lot of difference.

Next question is from the line of Nidhesh from Investec.

How are the trends in the collection efficiency on a month-on-month basis? So is it reasonable to expect that the trends have deteriorated through the quarter and July was the worst months in terms of trends? Or how that trend is -- specifically, if you can talk about current bucket production efficiency, how the trend is on that?

Yes. So just referring to the trends, if you remember that when we exited March in the previous quarter, after that, as has been discussed on the call already that the challenges that we have been looking at, so there has been moderation in the efficiency. So last April, assuming at what levels of 96.6%, 96.7%, May was few notches down at about 96.2%, 96.3%, then June at about 96%. So with our exit average like we mentioned at about 96 3%, July, we're seeing almost like a similar trend, looking at June exit numbers. So there has been a moderation in the trend, yes, to answer your question.

Okay. So in July also, it is broadly similar to what we are seeing?

Yes, yes.

Secondly, what is the share of AUM coming from each of these geographies, Tamil Nadu, Rajasthan, Odisha, Jharkhand and M.P. for us?

So in terms of -- when we look at contribution to our overall GLP, Tamil Nadu contributes close to about -- these typically would be around, Tamil Nadu contributes around 6%, so we mentioned Tamil Nadu, Rajasthan close to about 25% to 28%.

Okay. 25% to 28%. And sir, lastly, when we did our Analyst Meet, at that point in time also, we disclosed customer leverage. And in that us plus more than and equal to 5 by 6.4%, us plus 4 by 10.5%. The numbers this time that we disclosed were quite different. From Fusion+5 and more than 5 is almost 14.5% now, versus 6.4% in the last PPT. So why is there a difference in these two numbers?

Which slide are you referring?

Slide #8 in the current PPT and Slide #25 in the Analyst Presentation PPT, which we did in May.

We will just check. I think we are -- we'll get back. We have similar -- same slide numbers we've used. We will just check.

Next question is from the line of Ashlesh Sonje from Kotak Securities.

One question on that slide. Can you share -- you have given the breakup of customers who are Fusion+3, 4, 5, et cetera. Let's say, out of the Fusion+4 set of 9.6%, how many of them have already turned into NPA and so on for Fusion+5?

No. We need to come back on that how many have turned back to NPV. We do not have data right now. We will come back.

The other way to ask the same question, what is -- in your analysis, what has been a defining characteristic of the defaulting customer? What would have been a good early warning indicator to identify these customers?

So one, if the customer has consecutively not made 2 payments is something default. The second is customer needs -- in spite of regular follow-off twice size, 4 times, you're not able to collect money, even there is no intent of payment, because sometimes we have seen many customers, they make partial payments. So if there's no partial payment also come in. Then customer is not coming to center meeting. Then when you look at the credit bureau, how is the customer behaving often, whether the customer is paying to others, then that definitely there's a problem at our end, that is our follow up or whatever. So if the customer is also defaulting with others, all these becomes a trigger point. And that's what we -- because when we look at customers who have not paid for even in July, that is where it became the trigger point and then we started doing -- diving deep into the -- these change and look at whether the customer has paid even some partial payment and how is the credit bureau, what is the old debt paid. And broadly, we saw that these are all for our existing customers. It's not that this is -- there's a problem in sourcing where the customers are first cycle customer. 94% customers of these 55,000 customers are second cycle and above customers. So we looked at some of these data points to even -- again, I'm saying that it does not mean that we believe all the customer will not pay or anything. This could be temporary. But we thought that these are the trends we should call out early. But we will -- we are going whole hog to make sure that we collect from these customers. So we will give you a more status when we talk next time after our Q2 results.

Okay. but any rough sense you would have or how many of these customers would have slipped in ballpark, 20%, 40%, 50%?

No, no, I don't not have any ballpark. I don't want to give any ballpark.

Sir, secondly, on the attrition side, how is the trend there? And is it lower collection, which results in attrition? Or would you say it is the other way around?

Yes. I think sometimes it happens that when the customer -- the boy has to go again and again, door-to-door. It becomes tougher that timings are -- he has to spend more time in the field. Customer is refusing, and that's where that also we have seen, that becomes a trigger point that the customer says, the boy will say, okay, I will rather do something else because he's going to the field, not able to collect payment or customer is not meeting then that a becomes thing. So yes, that also -- that plays the role because a few of the customers, we have seen, where the boy is going, is able to do collections and also that is able to force customer. But when some of these things become tougher, so -- but that's where the company, we come in picture as a management. We understand all this. And then we put more seasoned people there. That's what we're doing some of these branches. We have shifted with our seasoned field officers, seasoned branch managers who have handled some of these situations. So I think these are things. I think -- I don't think this is something which we can't control or we are -- we've taken a lot of steps. So I don't think that is where our worry is. So we are doing everything to make sure that we engage with people more. I don't think that is something we can't control. In the August, we have seen -- sorry, in the July, we have seen -- later half of July, we have seen that at least that part is getting arrested.

Sir, just a clarification again on Slide #8, the data that you mentioned here includes retail exposures as well or only MFI exposures?

No, this is only MFI.

Next question is from the line of Anurag Mantry from Oxbow.

A couple of questions on my side. One, if you can send the data point, if you can let us know your PAR numbers, as of March and as of June. So like basically PAR 1 to 30 will be [ 31 to 90 ] and 90% is already there in the PPT, but if you can help with the early buckets that will be useful. Secondly, just want to understand, I mean, basically, this over-leveraging that we sort of highlighted as an issue when you shared the data, I mean largely what have been the PARs of this increase from March '23 to March '24? Has it kind of suddenly gone off or there has been a kind of a gradual increase over the year basically? I'm just trying to ask within the context that, could -- maybe proactive steps, could they have been taken slightly earlier? Or is this increase has happened again very suddenly and that's what has affected this? And a related question to the overhead point is, I think with the new RBI rule as to how lending should happen in the sector that came up, I think, about a couple of years back, regarding the household income-based lending. In that setup, I mean, why has this become a problem? Because I mean isn't that, that same rule supposed to make lending a lot more housing income and the leverage-based basically? Isn't it supposed to be a lot more focused rather than the earlier setup where it is a lot more difficult to be in certain household incomes?

So I will first start with your first question. Look, you've said that whether we could have done something proactively. You can -- you see, one, we have been calling out even when -- in the Q2 last year when -- Q3 when we talked about, we said that there is -- in Q2, we mentioned about floods, we mentioned about that there are certain -- there could be a temporary pain. So we have been saying this. Second, when it comes to the steps. We are -- we have already -- for the last 6, 8 months, we have been rationalizing our field officer. If you look at our March '23 or Q1 '24 numbers, per field officer was managing around 555 customers. That has today -- if we look at today, it has come down [ 404 ]. We go to maintain it around 450, because we have -- in the last quarter, we've added new ROs. They're under training, and they will be put up in the new branches of the existing branches. So coming to -- and then we mentioned that we are revamping our collection team 6 months back, and then we hired somebody who's joining in August. So that was -- that we have been saying even during the Analyst Meet. Similarly, since the RBI new norms came in, in March 2022, we were the only company which got caps. We had caps. Today, when the sector will bring caps, it will not have any impact on our disbursements because we had caps from the day 1, whether it is amount or whether there's number of lenders. So that's what I'm saying. So it's not that we have always been proactive. We have been taking all these steps. Even you look at the diversification, if you look at the state-wise concentration, we have district-wise concentration. So we have always been very proactive to make sure that we manage some of these risks. But this is something -- and coming to your point, I think, again, I'm saying this could be a temporary phenomenon. We don't know. We have to wait for another 2 months to really see that, but it got accentuated in this quarter, and that's why we are coming and we are calling out for this 55,000 customers. So this is about your first -- your point. Now come to the -- you are asking for the PAR numbers, yes. So if you talk about PAR 60, this is with the adjustment, I'm talking about PAR 60 plus, it is inclusive of the adjustment which we have moved from Stage 1 to Stage 3, 5.61% as of June '24. And on March, it was 3.10%. As far as PAR 30 is concerned, so June '24, it is 6.37%, including debt adjustment, and PAR 30 as of March is 3.44%.

Do you also happen to have the PAR 1-30 data that can be shared?

No, we share only PAR 30 numbers. So always -- because it's more -- some kind of trajectory number of customers. So we always give PAR 30 numbers.

And Devesh, just what I had asked earlier regarding the context of over-leveraging the new lending norms of RBI. Any thoughts you had...

Look, you are absolutely right that the new norms were actually meant for making sure that people do not do over-leverage. However, and this whole strike rate, which was increased because earlier, if you see, it was 2,00,000 in urban areas and 1,60,000 for rural areas household income, which now -- which became a 3,00,000 and -- but I think that's where a number of -- there was a number of lenders cap. So that -- and then we are also seeing the same customer being given loans under the non-qualifying criteria. That also has increased the overall leverage. There was a lot of liquidity last year. But I think now as a sector, we all are coming together for these guardrails, which I have been propagating since day 1 in -- when the new guidelines came in, in March 2022. But I hope now everyone will follow that, and everyone will come together for the long-term sustainability of the sector.

Ladies and gentlemen, we will take this as the last question for the day. I would now like to hand the conference over to [ Mr. Shreyas Pimple ] from JM Financial for the closing comments.

[indiscernible] time out and joining this call. Thank you so much.

Thank you, everyone.

Thank you. On behalf of JM Financial, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.