Fusion Finance Navigates Q3 FY26 with Restored Profitability and Strategic Growth

Fusion Finance Limited has demonstrated a robust performance in the third quarter of fiscal year 2026 (Q3 FY26), marking a significant turnaround with restored profitability and disciplined growth. The company, known for its microfinance and MSME lending, reported an Asset Under Management (AUM) of ₹6,876 Crore. This quarter saw a substantial increase in disbursements, reaching ₹1,594 Crore, reflecting a 23% quarter-on-quarter (QoQ) growth and a 37% year-on-year (YoY) increase. Total income for Q3 FY26 stood at ₹424 Crore. A key highlight was the return to profitability, with Profit After Tax (PAT) at ₹14 Crore, a notable recovery from a loss of ₹22 Crore in the previous quarter and a significant improvement from a loss of ₹719 Crore in Q3 FY25. The Net Interest Margin (NIM) also expanded to 11.32%, up from 10.85% QoQ and 8.86% YoY, indicating improved operational efficiency.

Fusion Finance's Q3 FY26 performance underscores its operational resilience and a strong focus on enhancing asset quality. The company's Pre-Provision Operating Profit (PPOP) grew by 5% QoQ to ₹94 Crore, and by 44% YoY, demonstrating underlying business strength. This improved profitability was primarily driven by better asset quality and calibrated growth strategies. The Capital Risk Adequacy Ratio (CRAR) remained strong at 38.80%, well above regulatory requirements, providing a solid capital buffer for future growth. Net Worth increased by 22% QoQ and 29% YoY to ₹2,331 Crore, bolstered by a rights issue that infused capital and strengthened the balance sheet.

Operational Resilience and Asset Quality Enhancement

The company has made significant strides in improving its portfolio quality. Current Collection Efficiency (CE) reached 99.14% in Q3 FY26, up from 98.77% in Q2 FY26. The "new book," comprising loans disbursed post-September 2024 with enhanced guardrails, now accounts for 79% of the total portfolio and boasts an even higher CE of 99.56%. This focus on quality is also reflected in the current bucket net flow, which significantly declined to approximately 0.25% in Q3 FY26 from 0.60% in Q2 FY26, indicating better early-stage collections and reduced slippages.

Credit costs continued their downward trend for the fifth consecutive quarter, falling to ₹79 Crore in Q3 FY26 from ₹571 Crore in Q3 FY25. This substantial reduction in impairment charges directly contributed to the restored profitability. The Gross Non-Performing Assets (GNPA) ratio also saw a significant decline to 4.38% in Q3 FY26 from 12.58% in Q3 FY25, while Net Non-Performing Assets (NNPA) stood at a healthy 0.63%. This improvement in asset quality metrics is a testament to the company's strengthened collection mechanisms and prudent lending practices.

The company's strategic approach to borrower deleveraging is evident in its book composition. The proportion of customers unique to Fusion Finance (Fusion Only) increased to 36.0% in December 2025, up from 34.1% in September 2025. Concurrently, the share of highly leveraged customers (Fusion+ >= 3) decreased significantly to 9.9% (6.8% on POS) from 13.9% (10.8% on POS) over the same period. This shift towards less leveraged customers is a deliberate strategy to mitigate risk and ensure sustainable growth. Disbursements are now exclusively made to customers who are in the current bucket for all their MFI loans, further reinforcing prudent lending. The approval rate for new disbursements has also shown a healthy increase, reaching 25.1% in Q3 FY26 from 24.2% in Q2 FY26, indicating effective risk assessment and customer selection.

The company's geographic presence remains strong, operating across 22 states and 489 districts with 1,537 branches. Uttar Pradesh, Bihar, and Odisha continue to be key disbursement states, showing robust QoQ and YoY growth. Uttar Pradesh accounted for 25% of Q3 FY26 disbursements, growing 19% QoQ and 40% YoY. Bihar contributed 19% of disbursements, with an impressive 33% QoQ and 135% YoY growth. Odisha also showed strong growth, with 31% QoQ and 157% YoY increase in disbursements. This diversified portfolio concentration, aligned with market maturity and expansion potential, helps de-risk the business.

Financial Summary Table

Deep Dive into Financials and Credit Quality

A closer examination of the Profit & Loss statement reveals the underlying drivers of the company's performance. Interest income, the primary revenue source, stood at ₹362.86 Crore in Q3 FY26, a 6% QoQ decline but a 17% YoY decrease, reflecting the strategic reduction in AUM from previous periods. However, other revenue from operations saw a significant 74% QoQ increase to ₹53.58 Crore, offsetting some of the interest income decline. Finance costs decreased by 8% QoQ and 42% YoY to ₹123.46 Crore, indicating improved efficiency in liability management and a favorable cost of borrowing. Employee benefit expenses remained stable at ₹153.44 Crore.

The most impactful change was in the impairment of financial instruments, which drastically reduced by 28% QoQ to ₹79.52 Crore and an impressive 86% YoY from ₹572.29 Crore in Q3 FY25. This sharp decline in impairment charges is a direct consequence of the improved asset quality and robust collection efforts. The Net P&L Impact from credit costs, after accounting for bad-debt recovery of ₹14 Crore, was ₹65 Crore, a significant improvement from ₹567 Crore in Q3 FY25. This translates to a Net P&L Impact of 1.0% of average on-book loan portfolio, down from 5.7% in Q3 FY25. The company's proactive approach to managing credit risk, including a management overlay of ₹29.5 Crore, further strengthens its position.

The balance sheet reflects a healthy financial structure. Total assets stood at ₹7,750.29 Crore, with loans (net of impairment loss allowance) at ₹5,639.42 Crore. Cash & Other Bank Balances saw a substantial 115% QoQ increase to ₹1,742.22 Crore, indicating strong liquidity. On the liabilities side, total liabilities were ₹5,418.97 Crore, with borrowings (other than debt securities) at ₹4,816.65 Crore. The significant increase in total equity to ₹2,331.32 Crore, up 22% QoQ and 29% YoY, highlights the successful capital raising initiatives and improved financial health.

The company's key ratios further underscore its improved performance. The portfolio yield remained strong at 21.6% in Q3 FY26. With the average cost of borrowing at 10.3% and NIM at 11.3%, the company demonstrates effective interest rate management. The Cost to Income ratio improved to 68.9% in Q3 FY26 from 70.2% in Q2 FY26, reflecting better operational efficiency. Similarly, Opex to Average AUM decreased to 11.9% from 10.1% in Q2 FY26, indicating a disciplined approach to managing operating expenses relative to its asset base. The significant reduction in GNPA and NNPA ratios, coupled with a robust CRAR, provides a strong foundation for future growth and investor confidence.

Strategic Initiatives and Future Outlook

Fusion Finance has also focused on strengthening its leadership and governance framework. Mr. Krishan Gopal joined as the Chief Financial Officer, bringing extensive financial expertise. Mr. Brahmanand, an MSME veteran, was appointed as an Independent Director, adding strategic depth, particularly as the company scales its MSME and semi-urban franchise. The management team is robust, with 85% of the team engaged in direct business and a majority of field leadership having over three years of vintage with the company. A dedicated Process & Quality vertical has been added to strengthen process adherence and oversee sourcing quality, while fraud monitoring and audit at the branch level have been enhanced.

The company is actively pursuing digital transformation to strengthen compliance, reduce fraud, and enable seamless digital onboarding. Key tech interventions include Aadhaar-Based Verification, Real-Time Voter ID Validation, and Paperless Digital Signing (Qsign). Geo-Fencing & Location Intelligence is used for monitored route planning and smarter resource deployment. AI/ML-Driven Credit Operations facilitate intelligent KYC validation, live face recognition, and automated credit decisioning, minimizing human bias. Omni-Channel Collections Enablement provides a unified interface across digital, tele-calling, and field teams, using AI/ML to identify high-risk customers and personalize outreach for improved recovery rates. These initiatives boost operational productivity, enhance credit discipline, and drive down costs.

The MSME business segment is a strategic growth area for Fusion Finance. In Q3 FY26, the MSME portfolio recorded an AUM of ₹729 Crore with disbursements of ₹77 Crore. The portfolio's Return on Investment (ROI) stood at 22.4%, with processing fees at 2.8%. The segment operates through 91 branches across 8 states, serving 20,226 active customers and 20,825 active accounts. The portfolio Loan-to-Value (LTV) is maintained at 42%, with an average ticket size (ATS) of ₹4.6 Lakh and an average tenor of 67 months. A significant 95% of the book is secured, and 100% of decisioning is centralized, ensuring robust underwriting. The company emphasizes 100% Udyam registration for all assets to qualify under the PSL pool, 96% digital collection, and 100% CERSAI charge creation.

The MSME sourcing model combines self-sourcing through marketing activities, branch walk-ins, and customer referrals, with a connector-based model leveraging growth partners and cross-sell opportunities. The company targets semi-urban and rural locations, with sourcing limited to within 50 KM from the branch. Its unique selling proposition includes the capability to underwrite rural and diverse collaterals while maintaining LTV below 50%, cashflow-based lending for micro-enterprises in the informal segment, and mandatory in-branch disbursement with biometric verification for transparency.

Fusion Finance maintains a strong and diversified liability profile. The average cost of borrowing has remained stable, hovering around 10.3% to 10.4% over the past year and in Q3 FY26. Public Sector Banks and Private Sector Banks constitute the largest portions of the borrowing mix, at 20% and 35% respectively in Q3 FY26, followed by Foreign Banks at 16% and Non-Banking Financial Institutions at 13%. This diversified funding base ensures stability and access to capital. The company also maintains a healthy positive Asset Liability Management (ALM) position, with average asset maturity significantly exceeding average liability maturity. The loan maturity profile shows 86% of loans maturing within 1-3 years, with a minimal 0% maturing in less than 1 year, indicating a well-managed liquidity position.

The company's credit ratings are strong, with long-term debt rated A-/Stable by CRISIL and CARE, and Commercial Paper rated A1 by CRISIL. These ratings reflect the company's robust financial health and prudent risk management. With sanctions in hand amounting to ₹1,825 Crore, Fusion Finance is well-positioned to continue its growth trajectory.

In conclusion, Fusion Finance Limited's Q3 FY26 results demonstrate a successful quarter of strategic clarity and disciplined execution. The company has effectively restored profitability through improved asset quality, calibrated disbursement growth, and enhanced operational efficiencies. The strengthening of leadership, coupled with significant investments in digital transformation and a prudent approach to liability management, positions Fusion Finance for sustained growth and continued value creation for its stakeholders. The focus on less leveraged customers and robust collection mechanisms indicates a strong commitment to long-term financial health and stability.