Fusion Micro Finance Ltd

NSE:FUSION

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to Fusion Finance Limited Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

From the management today, we have Mr. Devesh Sachdev, MD and CEO; Mr. Gaurav Maheshwari, CFO; Mr. Sunil Mundra, COO of the MFI business, Mr. Tarun Mehndiratta; Head Customer Loyalty Program and new initiatives and Mr. Deepak Madaan, Company Secretary and Chief Compliance Officer. We will have opening comments from the management team post which we will open the call for Q&A.

With that, I'll hand over the call to Mr. Devesh Sachdev. Thank you, and over to you, sir.

[Devesh Sachdev, executive]

Good afternoon, everyone, and thank you for joining Fusion's Q2 Financial Year '24-'25 Results Conference Call. I am here along with my colleagues, Sunil, who has recently joined as Chief Operating Officer for our MFI vertical. Tarun, who is now handling customer loyalty program and new initiatives Gaurav, the CFO; and Deepak Madaan, who is Chief Compliance Officer and IR. I hope you've got a chance to go through our investor presentation for Q2 FY '25. As we all know, the microfinance industry has been facing headwinds since past few months. In our last earnings call, we were one of the few MFIs which had highlighted the increasing steps in the sector.

The headwinds in MFI were not evenly spread across the country, and there were a few states that experienced elevated levels of stress on asset quality. Large part of the differential impact for the various microfinance lenders can also be attributable to their exposure to those geographies. As part of our early recognition of portfolio stress and to ensure that we have adequate coverage, we have made an upfront provisioning in June quarter. We had also shared an earliest estimate of expected provisioning of between INR 500 crores to INR 550 crores for Q2 FY '25 in mid-September, which was subject to limited review by auditors. I would like to mention that post the review of our auditors, our actual credit cost for Q2 FY '25 has been determined at INR 693 crores.

The elevated provisioning has been due to us proactively taking accelerated provisions due to observed rapid deterioration in the on-ground collections. Looking at our portfolio performance and challenges faced for the sector, our auditor wants to bring us -- bring to the attention that there are covenant breaches that will require waivers. We are in discussions with our lenders and rating agencies. We have received all the waivers in Q1 and remain confident that similar waivers will be granted further too.

Importantly, we believe that these breaches are temporary in nature, and we have already planned additional remedial measures, including the rights issue of up to INR 550 crores, on which we have been working on the last month or so. Now that our Q2 numbers are out, we have fast tracked the process and hope to file it within this quarter. We'd like to highlight that our balance sheet remains strong with a capital adequacy of 24.4% as of September '24, with a robust liquidity cushion of approximately INR 700 crores plus as of Q2 FY '25.

Now I would like to talk about the measures which we have undertaken to ease the stress and bring the business back on track. Firstly, I would like to talk about the steps on improving the collections. As highlighted in the last call, we now have a senior resource as collection head. We have strengthened our collections team as well. And now we have a robust team of 550-plus, dedicatedly focused on 60-plus DPD bucket. We have strengthened our telecalling infrastructure to reinforce outreach to our customers for better recoveries. We have also appointed third-party agencies in a few of the geographies to recover dues from 90-plus DPD customers. Additionally, we have reached the incentive structures across business team to increase focus on collections.

Second, we have tightened our credit criteria. As a result, our new customer onboarding criteria is now tighter than the [indiscernible] guardrails with lender cap of 3 lenders per borrower an exposure cap of [ INR 150,000 ] per borrower for new clients. This has calibrated our overall disbursements, which have dropped to INR 1,661 crore from INR 2,987 crores in Q1. This has also led to a rise in our rejection rates while ensuring that we are building a quality portfolio.

Here, I would like to highlight that while at a sectoral level, the uncertainty still persists regarding the duration of this situation and customer behavior evolution as core issues gradually normalize. We are observing some early positive signs, though these remain in a [indiscernible] stage. Sectoral measures are showing results and overdebtness is beginning to decline. The rural agriculture economy is expected to improve due to favorable monsoons, which is likely to advance income labels.

Specific to Fusion, as we continue to progressively align with the changing external environment, we are observing following things. Early preemptive actions taken in the previous quarter followed by a sector-wide guardrails issued by MFIN have moderated the composition of portfolio vis-a-vis customers having equal to more than 4 lenders with a corresponding impact on overall indebtedness levels. We have mentioned this in Slide #9.

Collection performance seems to be stabilizing, and we continue to monitor the same closely. Further, in addition to the above measures that I spoke about, we have also taken more steps to address the current challenges and support the healthy growth of the business. To tackle the issue of low center meeting attendance, we have already reduced our customer handling for our per relationship officer to 380 customers for per relationship officer, so that we can improve our customer outreach on ground with strong focus on customers with regular -- irregular attendance.

Further, we have been working on our customer loyalty program. While it is in an early phase, we have received encouraging response from our customers, and we have seen improvement in their attendance whenever this program has been launched. In addition to this, we also had a separate telecalling infrastructure for customers up to 60-plus DPD, which is helping us to increase touch points with our customers and enhance engagement.

The moderation in client handling per field officer will also help in reducing workloads and attrition at the ground level. Apart from this, we have also stepped up our efforts in training our field staff so that they are well equipped in a dynamic environment. We're also taking several other steps to motivate and incentivize the field staff. We have continued to strengthen the executive leadership team of the company. And as previously mentioned, have initiated a search to appoint a new CEO, which is also on track. Additionally, we're also initiating a project to further review and enhance our internal policy and processes with respect to reimbursements, over and above the changes we have already made.

From a medium-term perspective, our focus remains on enhancing our IT capabilities to improve our operational efficiencies, fuel personal management and risk controls. We see this as critical going to our extensive geographical presence. Our other key focus areas would be our MSME vertical as we ramp up our efforts to expand share in our overall business. Our MSME AUM has gone to INR 620 crores with almost 78% of the portfolio being secured. We have implemented new loan origination and customer management tech platform, which has been built in-house. Once fully rolled out, it will bring in better operational efficiency and scalability. Our MSME portfolio quality continues to be healthy.

At the overall company level, I would like to reiterate that we continue to remain adequately capitalized, which will be further strengthened post the completion of the rights issue. As mentioned earlier, we continue to maintain a healthy liquidity in excess of INR 1,700 crores. I would like to assure you that our strong focus is on improving collection efficiency and thereby our overall portfolio quality. As seen in the past, second half of financial year should see better rural activity. We are hopeful this will aid in our recovery process. We remain watchful and continue to evaluate discussion on quarter-on-quarter basis while taking measured approach. Thank you very much.

With this, I hand over the call to my colleague, Gaurav.

[Gaurav Maheshwari, executive]

Thank you, Devesh. Good afternoon, everyone. Firstly, I would like to talk about our liability side, including fundraising, capital position and liquidity.

In Q2 FY '25, we have raised INR 1,513 crores, including direct assignment of INR 435 crores in Q2. Until H1, we are able to raise INR 4,060 crores, including direct assignment of INR 915 crores. In the month of September, we drew the remaining tranche of $5 million from DFC which is U.S. International Development Finance Corporation. As on September 30, our liquidity stands at INR 1,800 crores approx, and we have sanctions in hand of approximately INR 1,500 crores. Refer Slide #26 for stable liquidity position for -- from October to March '25.

We are maintaining a healthy capital adequacy of 24.39% as on 30th September. And as mentioned by Devesh, we are in a process to raise capital under the rights issue. Our marginal cost of fund has further reduced by 4 bps on a quarter-on-quarter basis and 53 bps on a year-on-year basis. Average cost of fund has decreased by 50 bps on a year-on-year basis and by 4 bps on quarter-on-quarter basis.

The NIM of the company has reduced by 15 bps to 11.48% from Q1 and increased by 37 bps on a year-on-year basis. It is largely due to the higher write-offs taken in this quarter. The interest income of the company grew by 0.77% on a quarter-on-quarter basis and 26.02% on a year-on-year basis. The total income has reduced by 0.42% on a quarter-on-quarter basis and increased by 23.19% on a year-on-year basis. Cost-to-income ratio stands at 40.41%, which Devesh has mentioned that we have rationalized the manpower on the field level where our productivity has been reduced to a particular level. And apart from that, we have revamped the incentive structure for the collection team and the regular field staff.

The operating cost has increased by 21 bps on a quarter-on-quarter basis. As mentioned earlier into the cost-to-income ratio, the major reason is because of the incentive structure and the rationalization of the manpower at field level. Operating costs for MFI business is 6.18%, and MSME business contributed 0.30% for Q2 FY '25. As on September 30, 2024, the pre-provision operating profit is INR 284 crores, increased by 17.39% on a year-on-year basis and decreased by 4.67% on a quarter-on-quarter basis.

The ECL as on September stands at INR 1,140 crores, which includes INR 59.50 crores of management overlay. We have done total write-off in H1 is INR 264.84 crores. And in Q2, we have done write-off of INR 196.44 crores. The derecognition of interest pertaining to this write-off is INR 34.41 crores in Q2. The gross NPA stands at 9.41% and net NPA stands at 2.41%. In this quarter, as mentioned earlier, we have done direct assignment of INR 435 crores, which is approximately 11.70% of the total book and we will continue to do so as for the market condition.

Thanks. And now we can open the question -- open the floor to the question and answer.

[Operator]

[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

Just two questions. First things first. I mean by -- in the opening remarks, you highlighted the external challenges, which are there. If you could also just highlight what are the deficiencies that you have identified internally because I'm sure you will also acknowledge our performance, our asset quality, our credit costs are much higher than what we've seen in the rest of the industry. So what are the deficiencies that you have identified maybe in your processes, controls, supervisory levels? That is the first question.

The second one is, what is the basis on which your auditor has put out the note on the going concern premise. So we went through to the note where you've spoken about almost INR 5,000 crores of liabilities, which are repayable on demand given the breaches in covenant. So if you could just throw some more light on that? Just trying to understand what is the probability that maybe Fusion might [indiscernible] to each liabilities going ahead. Particularly, what is the support that our 2 promoters have shown in this regard? And lastly, which are those 5 banks there on your liability side, which has the highest exposure to [indiscernible] today?

[Devesh Sachdev, executive]

Yes. So thank you. I will first like to take your question on whether we have identified any deficiency or process and everything. I think my answer to this is like -- when you look back, you can always say that you can always -- but you could have done more. But I don't think where we have found any such deficiency. We are -- as an evolving organization, you always look at your processes you want to strengthen. That is what we have been doing.

If you look at the fact that the sector itself is going through a challenge, we have been putting out the leverage of the customer in all our past conference calls. The -- and this has and accentuated by the customer at overall central meeting discipline, door-to-door collection, some pain at the ground. So what we have noticed is that overall, the profile of the customer, the credit profile of the customer has weakened because of this over leverage. That is what is our observation. And that is the reason that even at a sector level, if you see, everyone has come together for this 4 lender, guardrail to Fusion, we have always been ahead. Even we had that guardrail since 2022, and we have now kept it more stringent.

And then overall, the nature of the -- some of the aspects of the sector are changing. We are aligning with that -- like we mentioned even in the last call that now you need to have a separate collection team that we have put in place. You have -- because of the model, the guy who was doing the sourcing was also doing the collection. But now because the customer profile and the difficulties are in the field due to customer, the boy has to go door to door. And then there are -- in some pockets, there are outside influences on -- because of the pain people who are illegal agencies were trying to influence customer not to pay.

And you have also seen there are various disruptions, which may have accelerated this situation because they were floods. We have highlighted the floods last year in Punjab, in Northern India, Rajasthan, MP. We have also highlighted that the pain in Punjab because of the factors which are outside the control of the sector, which is the [indiscernible] Similarly, the first Q1, we have seen heat waves and all that.

So I think, the point we are -- I'm trying [indiscernible] is that there were some of the -- these factors also which have played a role in the customers actually impacting their livelihood and customers not able to pay on time. We have seen in the past, if you go back, look at all the -- sorry -- the sector have the resilience during the demon, all the events which happened after demon and COVID. What we had seen is that there are -- I think customer is taking some time. There are some delays we are seeing even in the higher bucket, some customers are trying to make a payment. Once the overall leverage of the sector is going down, which we have referred in the Slide 9 which, is clearly visible even our portfolio and overall economic activity on the ground will go up. And I'm sure that this customer will come back as the way this customer has come back in the past in various events. So this is my response on your first point.

The second point you mentioned about that -- about this covenant breach. Because we have done an oversized overall provisioning in this quarter and some -- due to acceleration of provisions, our auditor, thought it [ prudent ] to bring to the attention that there are covenant breaches which is that will require waivers. You asked about that our confidence, look, we -- in the -- we have all the waivers until Q1. We had a covenant breaches even in Q1. We've got all the waivers. As I mentioned in my commentary, we are in discussion with the lenders and rating agencies. We remain confident that the similar waivers will be granted further too. We -- and these are -- breaches are temporary in nature. We have already planned our rights issue, I can confirm again that our promoters are completely behind this INR 550 crores rights issue. We have been working on for the last month or so.

Now because we were waiting for our Q2 results to be out so that we can do the filing, that filing process has been fast track. And you will see that we are confident that within this quarter, we'll be able to file this. And as far as our liquidity very -- we have a strong balance sheet, capital adequacy of 24.4%, and we have a robust liquidity of INR 1,700 crores, which gives us confidence that we will be able to continue to remain sustainable going forward.

Regarding your -- Gaurav, can you answer on some specific point on the number of lenders? Top lenders and the...

[Gaurav Maheshwari, executive]

So the top 5 lenders are HSBC, Axis Bank, Yes Bank, ICICI, SIDBI and IDFC First.

[Abhijit Tibrewal, analyst]

Got it Gaurav sir. And roughly, I mean, the top 2, 3 will be in excess of INR 200 crores, INR 300 crores?

[Gaurav Maheshwari, executive]

So they are having an exposure of more than INR 500 crores per bank. And having said that, we are already in discussion with the bankers. So as of today, we are in active discussion to have the waiver to be happening. And as mentioned by Devesh in Q1, we got breach from 12 lenders. All the 12 lenders have given the waivers for Q1. And they're largely -- they have given a waiver for the entire financial year and for -- some of the bankers have given for Q1, Q2 also.

[Abhijit Tibrewal, analyst]

Okay, got it sir. And sir, just one follow-up on that. I mean what are the covenant breaches that have happened? Is it more in the nature of the level of [ GST ] GNPA where we are at? Or is it more in the nature of the kind of credit costs that we have reported in the quarter?

And one follow-up for Devesh sir. In your opening remarks, you also spoke about that there are a few states which have experienced elevated levels of stress and whatever we have seen in this quarter can also be attributable to the respective lender exposure to those geographies. So if you could give some nuances around those particular states, which are a problem area today?

[Devesh Sachdev, executive]

So as far as the covenant breaches are concerned, it is largely what you have said, Abhijit. One is gross NPA. Second is net NPA, and third is a rating downgrade, which has happened by CARE, which was in the month of September.

As we have already communicated about the rating downgrade to all the lenders, and it has been near about more than 30 days to all the lenders we have the rating downgrade happens has been communicated. Everybody has confirmed that they are not doing something, and they are active in discussion with us.

[Gaurav Maheshwari, executive]

Yes. Also to your first question on the states, like we had mentioned last time as well. So we had seen -- pain in our states of Jharkhand, Odisha, Rajasthan, Gujarat. And we had mentioned also that there was a mix of reasons. Obviously, we -- like Devesh had mentioned in his opening remarks, about unnatural and unforeseen dramatic conditions added to the pain. But having said that, other than those regions, we've also now seen some of these parts of the states showing resilience, like we've always witnessed.

So we see some bit of pain easing in part of East Odisha. We see some bit of pain. We've seen actually in Punjab and [indiscernible] which erstwhile, as you remember last year as well because of issues there. And then part of Southern Tamil Nadu and then especially some parts of -- in and around Gopal. So these have been some of the encouraging geographies which have shown resilience. So while they are part of the larger states, but we've seen them showing resilience to come back to normalcy.

[Operator]

We'll take the next question from the line of Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

Sir, my first question is on the lender data that you've shared, Fusion plus 4 or more lenders was -- is that 10% now? It was at 17% in March '24. So if you can help us understand the 7% borrowers that have moved out of this bucket, how many were written off? Or did they close their loans with the other lender? Do you have some color around that?

And I guess that the PAR data you've shared that about 70% of these 9.7% customers are paying regularly. So is there still -- in your assessment, do you think there's still some risk cost this 9.7% slipping further more? Any color around this would be very helpful.

My second question is on the loan officer attrition. So what I understand is, if you can help me understand how much part of these new loan officers salary is variable. So for example, if the majority of the salary ends up being variable in times of stress, they may find leaving the job easier. So are we having any discussions around that on what kind of salary structure do we want to keep? Do we want to keep majority in variable form or majority in fixed form?

And my last question is you spoke about these unauthorized legal agencies. So just wanted to understand, because I thought this [indiscernible] was done in [indiscernible] in Punjab and the Northern area. So this shouldn't have been impacting us from -- in this quarter at least. And if it is happening, which states are these unauthorized indigent agencies operating in?

[Gaurav Maheshwari, executive]

Shreya, I will go one by one. The first question was the number of overleverage land, number of customers which have come down. So look, I do not have the very specific number, but I can tell you that broadly, it is factors like there were customers in our book, which were at the [ back ] end, which have closed their loan and we have not renewed relationship. This could be our customers who are at [ back ] end with others, and they have not -- because no guardrails are in place, they could have closed their loan. And then some customers, we've also written off that could also a factor.

So I think it's a very good sign that it shows that people are -- even the industry -- at industry level, there is an attempt to make sure that the guardrails are followed by everyone. And the customer who is defaulting customer has more lending relationships is not given further money. So in my view, any such kind of situation creates some temporary scarcity at the customer level because the supply is low. But for the long-term sustainability of the sector, and I think we're all aligned towards better customer acquisition -- follow some of the common norms at the industry level, force or, basically persuade customers, engage with the customers to come on the center. Resolving these steps will really help in making sure that the industry becomes more resilient.

And then there are certain issues which still remain, which is -- there is some pain -- income level pains at the ground. Once the customers -- the leverage will come down, I think it will be easy for them to really repay their loans. We have gone further tighter in terms of [indiscernible] What we have done is that though we have the sector is at overdebtness, which has been fixed by the -- our SRO is at INR 2 lakh. We have gone state by state. We have looked at certain states which have given more pain. We have even gone further and say, okay, we will do only INR 1.5 lakh. Then we are doing some more granular in terms of understanding the [ villages ] So I think all those steps should help in the long run. There will be some temporary pain, which will remain.

But your next point was about the -- so on the incentive. So Shreya, you are absolutely right. As a company, we have never ever had the situation where the large proportion of the -- the money which the field officer gets is variable. I totally agree with you. Only thing is what -- so we have seen, in our case, the incentive is out of the total salary is around 25%, 30% only. It has never gone beyond that.

Just to give you example, I think get around from INR 15,000, so out of that INR 4,000, INR 4,000 average, INR 3,500 to INR 4,000 has been our average incentive over the years. But we can also -- in terms -- in situations like this, just to -- I'll take you back to COVID and situations even post demonetization. We always have a certain lower cap so that these people remain overall incentivize and we encourage people by having making sure that at least some base level incentive goes to them. But we never do the situation where the incentive -- proportion of the incentive is too high in overall component of the salary structure for the field officer. So that is your -- my point on incentive structure.

Third thing, what we have -- what I have mentioned that the situation which we see is accentuated. I'm not talking about this quarter. I have -- what I was talking about that if you look at the events in the last 1 year, starting from what happened in Punjab and then in some portion -- some areas. That is what I was saying that there are illegal house agencies, which have tried to influence customers and especially during the stress -- any stress that the customer has, they have this inclination to really [ bank ] on some of these people to really -- not to pay.

We, at MFIN level, are very closely working with some of the states to make sure that wherever something like this, which happens it is taken care of. However, the point I'm trying to drive is that yes, there are some small events here and there, which keep on happening like we have seen even in Eastern UP from these events. So they keep on happening, we try to -- at a sectoral level, we all come together. We work with that administration. We work with the state government.

However, that -- once the situation is -- from the outside influence situation is curtailed, but the customer takes some time. You need to do a lot of visits to them, persuasion, moral persuasion, engagement to bring the customers back. That is the point I'm trying to drive there. That it takes some time for the customers to really realize that, look, they are not -- there's no waiver. They will not get money. Once they need the money, then they really come back and they start paying. And that is the reason you see we have seen in our situation also even the customer you've written off. We always get around 6%, 7% collection, keeps on happening even from that [ pool ] Those customer comes back and realize. So that's the point. I hope I have comprehensively covered your 3 points.

[Operator]

We'll take the next question from the line of Bhavik Dave from Nippon.

[Bhavik Dave, analyst]

Few questions, sir. One on -- a little bit on the past. One is when we look at our data and when we analyze the customers that have -- that we've written off over the last 1H FY '25, where is the pain coming from in the sense, is it like the 3-plus customers who had 3 plus loans over and above Fusion is where the pain is? Or is it customers with higher indebtedness is where the pain is? Or is it where external environment has gotten difficult and things have gone by.

So if you can -- if you had 100 customers that you've written off, if you could just explain us what is the -- where is the pain coming from in terms of cohorts, that will be question one.

Question two is, when we look at the customers that have gone down like [ 1 lakh, 30-odd lakh ] [ 120,000-odd ] customers, we may be written off and the customer count has come off. What exactly is the reason there, in a sense, again, any customers where we saw documentation not being done properly from our end. Because what we understand is there have been a lot of lapses across players in terms of KYC. And if you could just talk about out of the 38-odd lakh customers that we have, how many have you underwritten on Aadhar versus any other document like a voter ID or any other document to onboard the customer. So if you could just talk a little bit on this, just to understand how the past has been?

[Devesh Sachdev, executive]

Yes. So one Bhavik, let me tell you the full confidence that we -- all the customers in the KYC. We are -- we onboard the customers with the KYC. We look at the credit bureau. So as far as that angle is concerned, we have -- I don't think there is any lapses which we have found. We remain very committed to have a very tightly follow the processes.

However, to your second question on your point on the color of this thing. So like if you see in our Slide #9, we have even mentioned that if you look at our PAR 0 completion of PAR 0 and especially with the customers, where relationship is with Fusion plus 3 and more than Fusion plus 4. You look at the PAR composition. So what we have -- one color, we have absolutely seen that when the relationship goes beyond. So as I mentioned earlier also that the overall, when the client indebtedness goes, Bhavik, beyond [indiscernible] and depending on geographies, especially geographies, which are in pain like Chhattisgarh, Rajasthan, Gujarat, MP Odisha and Jharkhand their -- and customer relationship with the number of lenders goes beyond 4, that's where we have seen the cohort clearly shows that the pain is more.

Just to give you one more data point that in terms of our -- how we are tightening it now, we also look at the fact that the customer goes to a 30 plus, more than twice in the last 12 months, the tendency to default is more. We have also now -- we have been doing this retail to make sure in our new credit policy, we have brought this point that we will not onboard a customer if it has gone more than 30 plus. So that is on this thing. But broadly, Bhavik, I think if you see, it is also accentuated by the over lending, the door to door, we have seen many cases where the customer intent is there. But because of the whole model where it was dependent on all the customers coming on a center meeting. They are paying -- earlier, the center meeting used to around 15, 20, 25 minutes.

Now center meetings are happening around 45, 50. 50% cases, the boy has to go door to door. Customers -- now the customer knows that if they don't pay today, they can always give promise to pay. So that discipline has got the disrupted. So it is very difficult. We're saying, no, there are some lapses in terms of onboarding, no. I think it is -- there has been some -- you know that there is some credit exuberance, which has happened. And then we have also been publishing the data that the retail overlap, there is one more animal we have seen where whether it's fintech, whether it is they are customers taking loans from 2-wheelers, the customer who are taking loans from other sources. That also has increased the overall leverage of the customer.

So I think overleverage, in my view, is the basic point. And then because of these issues of door to door somewhere attrition because attrition also the fact that the boy -- conditions have become tough. He has to go and haggle with the customer, engage with the customer door-to-door and then he's not able to -- now everyone has tightened. He's not able to source those many customers. We have even lowered to earlier question, which Shreya asked about incentive. We have even lowered the number of new customers he is going to source every month.

We've even gone as saying, okay, there is a certain number, you cannot even source because we believe that if you do more customers that means there's some kind of quality this thing. So we are -- and then the new third eye we are trying to be -- many branches we have put a third eye, where we are third layer. And then on one of the slides, we have mentioned that we are bringing the quality and offsite and we already have given offer to around 60 people. In the first phase, we'll bring around 200 branches. The idea is that look at some of these things.

So I think it's a -- it's a more broader this thing. But we are -- whatever learnings we are, we have seen, we are trying to implement those.

[Bhavik Dave, analyst]

And sir, second question is on future. And when I look at what you mentioned if you take that point of overleveraging where almost 28%, 29% of the customers have 3-plus and 4-plus loans. And even when you look at the cut on ticket -- on the average indebtedness of the customer is around 27-odd percent over 1 lakh. So around 30% of the customers are under stress. And out of which, 14.5 -- sorry, almost 15% is PAR 0, right?

Going ahead, how do -- what kind of credit cost or how much is more to come in terms of pain, right? Like will 50% of the 15% go off in the second half? Or will it be 70%, 80%? How are we looking at it? Because we've already utilized the kind of provisions that we spoke about in this quarter itself. How that is going to be in the second half, considering things have not materially improved, right? They're improving. Like if I look at your number from March '24 to now, 5% of your customers have gone lower in terms of the 100,000 plus indebtedness, right? But the write-off that you've seen is almost 10-odd percent.

So from a second half perspective, how are you thinking about business? Out of this 15-odd percent of PAR 0, how much can like really come as a write-off or a credit cost? If you could guide us something on that would be really helpful.

[Devesh Sachdev, executive]

Yes. So my 2, 3 comments here, Bhavik. I think one, just to say that any customer who has more relationships, all the customers will behave badly, I think that's not the right assumption because I can give you one more data point.

We have looked at our customers in the top 5 states. And what we saw that 85% customers are still current. They are either current or up to 30%, but they are still -- in the last 6 months, they have not gone beyond 30%. So I think there is some pain they are going through. So they are still -- there is an effort. So -- which is a one data point I can share with you.

Your second point is all in my view, in our assessment in terms of provisioning in this quarter, I think there's a peak we have hit. From here on, we should see improvement in our performance. But based on the steps we are taking. Having said that, I think the things still remain dynamic, and we remain watchful. Therefore, I will reserve myself from providing any guidance for H2, Bhavik. I can only give you, as we mentioned, that we are seeing some green shoots. The book after the tightening of the credit norms further, though month on board is not the right metric because I think when we talk next time after Q3, that will be better time. But we have seen the early signs that, that book is behaving better than what the similar book was behaving during the last 2 quarters.

And then as we have put up the collection team, we have seen that there are amounts which are being picked up, though the overall quantum in those buckets are still high. But that numbers are progressively in the last 3 months have improved. Our overall collection efficiency, which we have mentioned in our PPT is holding up. So I can tell you that even until now, I think in October also, the numbers are more or less similar. So it's not that it is going down. So that gives us some kind of confidence that, look, once this could be over, hopefully, if there is no other intervention and how things are coming and everyone has tightened the norms, the overall you see at a sectoral level, the disbursements are down. Customers will realize that they need to keep their records clean. They will need money, like activity will go up once this pain goes down. So I think -- so that is what we would like to say on your point.

[Bhavik Dave, analyst]

And sir, it will be helpful if you could just like maybe post this call, give us a 30 DPD, 60 DPD cut of this 14.9% and just talk a little -- to give us a flow chart of how it happened in first quarter and second quarter. Because what happened is that the 30 DPD roll forwards are not stopping, then eventually, it will hurt us in terms of credit cost when they crossed 90 right? And we'll have to provide 50% and 70-odd percent, respectively, as they move bucket. So if you could just give us that flow that will be important because otherwise, even if we have a second half, which is half as bad as the first half, I think things will really look bad in terms of the overall numbers.

And because our challenge is liability because if I heard Gaurav correctly, this quarter, you've only been -- like we've been only be able to get INR 1,000-odd crores from lenders. Any color on how the conversations are panning out with banks in terms of borrowings that we might have to raise in terms of the liability side? Could you just talk a little bit about that? That will be helpful.

[Devesh Sachdev, executive]

So I will let Gaurav add, but I'll make 2, 3 comments here Bhavik. One, when you said that we got -- because we were -- normally, we carry on our balance sheet cash of around 8% to 10%. Keeping this situation, we were already carrying as we mentioned, around INR 1,700 crores to INR 1,800 crores of cash. We did not -- and our disbursements were down from earlier, if you see, it's around 60% -- around 50% to 60% drop from what we did in Q1. So we thought this is sufficient.

I can make one more observation here that we -- if the way the collection efficiencies are holding up around 91%, 92%. Even at a 90% collection we are able to service our debt and our OpEx. So that is my second comment. Let -- and then I will let Gaurav respond, add more.

[Gaurav Maheshwari, executive]

Yes. So as Devesh has mentioned, because we usually calibrate the incremental source of money as per our disbursement plan. But obviously, after the Q1 results, we have made slightly change in our overall liquidity position to carry. So that is what Devesh has mentioned that we are carrying approximately between INR 1,700 crores to INR 1,800 crores on balance sheet as cash.

Now obviously, we have come out with the Q2 result. And obviously, we know what is the flavor of the sector. So we are actively engaging with the lenders. And we have -- we are getting a slightly more of a good response from that, that they are going to have some discussion with us on the covenant waiver. Once the covenant waiver is there, then obviously, we are going to have.

[Devesh Sachdev, executive]

Also, Bhavik, I think one more big confidence we are trying to give to all our stakeholders in this rights issue. I think this INR 550 crore rights issue is giving a good confidence to all our stakeholders and promoters are completely backing us up.

In the past, also, we have -- we have similar -- some challenges we have faced, whether post demonetization or COVID. We have got full support from our lenders, and we are hopeful that lenders will give us full support. We have a very healthy capital adequacy. And once this INR 550 crores is in, it will further strengthen our capital adequacy from a cash flow perspective, as I mentioned to you, I don't think we will be going back to our normal disbursement levels very soon. So you will -- disbursement levels will still be slightly subdued.

So I think we will keep you updated on how our discussion is going on. We are very actively speaking to that, and we are very hopeful.

[Gaurav Maheshwari, executive]

Again, adding to what Devesh has said that in Q1 also, we have certain breaches in the covenant. We got all the waivers from all the lenders. As of today, from a Q1 perspective, we are not in default of any of the breach.

[Operator]

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

[Pranav Gupta, analyst]

Two questions and one clarification. If you talk about collection efficiency, in the bucket or in the equity bucket, how is that trend move you mentioned that there have been certain green shoots, but could you give out that number? That will be very helpful. That's the first question.

[Devesh Sachdev, executive]

Sorry Pranav, I could not hear what did you say? Sorry, can you repeat your question, please?

[Operator]

Mr. Gupta, please use your handset to ask question. There is a lot of static.

[Pranav Gupta, analyst]

Is this better?

[Operator]

Yes, please continue.

[Pranav Gupta, analyst]

Just two questions and one clarification. So first question is if you can talk about the collection efficiency in 0 bucket or [ ex ] bucket, that will give us an idea of how the flow forwards are moving. If you can give that out, that would be very helpful to understand how we can think about the quarters going ahead? That's the first question.

[Devesh Sachdev, executive]

Okay. Okay. You can tell me both the questions, and then I can answer.

[Pranav Gupta, analyst]

Sir, the second question is, if you talk from an industry perspective and even if you look at our numbers, it seems that a large part of the overleverage has mainly come in the industry because of the relaxation of RBI norms on the -- from moving from our ticket size cap to a household income assessment cap. When we analyze the borrowers that we have today, is it fair to assume that a large part of those borrowers as per our assessment would sit in the more than 2.5 lakh household income bucket? Is that a fair assessment to make? Those are the two questions.

[Devesh Sachdev, executive]

Gaurav, answer the first question.

[Gaurav Maheshwari, executive]

So to your question on the collection efficiency in the current bucket. So at a pan-India level, we've been maintaining almost 97% collection efficiency on that particular bucket. And this has been kind of consistent across the months. And just to give you a flavor. So that has been -- I mean, what we -- the number that we've shown you on the -- on all the buckets taken together that's the comprehensive number, but it's about 97% of the current bucket.

To the second question, I'll let Devesh answer that to you.

[Devesh Sachdev, executive]

So I think once this RBI deregulation and especially the change of rules happened in March 2022, and this was definitely an ask from the industry that the overall household level caps of INR 2 lakh and [indiscernible] I remember, rural areas were low because overall income levels, inflation taken that account. So -- and this was done with the fact that [ everyone ] will follow in all these norms.

But looking at -- you're right, I think there are people -- there are other retail overlaps, which has led to the [ overleverage ] of this customer. Looking at -- when we look at our -- this thing because we are a ruler MFI, and we see that mostly the customer income level household level income levels are hovering in between 2 to 2.75, 2.8, that's the broad income levels. However, you have to also appreciate that all this is -- it's very difficult to really ascertain. So there's no formal way. So all this is done in a very informal method, speaking to the customer on the face-to-face and asking them questions around it. So that -- we also have to keep in mind that there are no formal ways to understand.

We are slightly going -- I mean at a sector level, we have slightly now come out with some kind of template. How do you treat retail overlaps, which is like there's no EMI, but there's a loan of -- suppose the customer husband has credit card, and there is no EMI, which is mentioned. So we say, okay, which is a minimum view, at least 5% has to be taken into account in calculation of the liability of the customer every month. If there's a [ gold loan ] which is [ bullet ]. So we have come out with even those formulas now at a sector level, and we are in the process of implementing. Only in cases where there's no EMI mentioned.

So I think it's an evolving thing. I agree with you, I think companies, we all have to really be more move towards a situation where to how you assess the customer better. But keeping in mind that it still remains an informal asset class, and there would always be ambiguity in terms of understanding the real income of the customer.

[Pranav Gupta, analyst]

Right. Sir, just one clarification...

[Operator]

I'm sorry I would request you to...

[Devesh Sachdev, executive]

You can actually reach out personally to my IR team for any clarification, please.

[Operator]

Ladies and gentlemen, that was the last question for today. We will close the call now. On behalf of Fusion Finance Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.

[Devesh Sachdev, executive]

Thank you.

[Gaurav Maheshwari, executive]

Thank you.