A new chapter in microfinance

The growth seems to be driven more by lenders' obsession for loan disbursements rather than demand

- TAMAL BAN DYO PAD HYAY

Fusion Finance Ltd, a listed microfinance company, recently said that it might need to make an additional provision of ₹500-550 crore in the September quarter of 2024-25 (FY2025) to address rising bad loans. In the first quarter, Fusion had made a provision of ₹348 crore.

In a stock market filing on September 21, Fusion stated: "Since the release of the Q1 FY25 results, the management of the company has been focused on tracking the evolving credit behaviour of its borrowers.... Based on trends thus far... it is likely that the company may be required to make an estimated credit loss provisioning between ₹500 crore to (sic) ₹550 crore... The estimated credit loss provisioning may undergo revisions upon finalisation of the Q2 FY25 results."

A microfinance analyst estimates the September quarter annualised credit cost of the company at 17 per cent, sharply higher than the June quarter's annualised credit cost of 11.8 per cent.

Fusion had taken note of the "evolving credit behaviour" of its microfinance borrowers in the June quarter.

During an earnings call, its MD and CEO, Devesh Sachdev, had drawn the attention of analysts to how borrower leverage had been increasing. The number of borrowers with more than four loans (drawn from different lenders) had risen "significantly."

"Many of our onboarding customers have gone ahead and taken two or more loans ... beyond their repayment capacity. We saw the impact of this on our portfolio, as some of our leverage clients were unable to service the instalments even after multiple follow ups," Sachdev had said.

He had made this comment after drawing analysts' attention to Slide No 8.

What did that slide say?