Fusion MicroFinance plans to cut its bank funding share to 55-60%

Microfinance lender Fusion MicroFinance Ltd is reworking its fundraising strategy to reduce bank borrowings to below 60 per cent of total borrowings in three to five years from over 80 per cent at present. It would enhance the share of market fundraising and overseas borrowings in the backdrop of a rating upgrade, helping reduce the cost of funds by 10-15 basis points.

“We are recalibrating our strategy for fundraising. We were waiting for a rating upgrade. Now we will look at External Commercial Borrowings (ECBs), Non-Convertible Debentures (NCDs), and some other market instruments. Going forward, we would like to diversify the sources of funds. Earlier (before upgrade) it was not economically viable to have some of these instruments," Devesh Sachdev, its Managing Director and Chief Executive, said.

The first focus for the Gurugram-based BSE listed lender is to bring down the share of bank funding in resources to 76-77 per cent in the near term. And suppose another rating upgrade happens in 12-18 months, then reduce the share of banks to 55-60 per cent and 40-45 per cent for a mix of all other instruments in the three to five years. In the next two quarters, the company will close a fully hedged large ECB (about $25 million), Sachdev said.

In October 2023, rating agency CRISIL upgraded Fusion's long-term rating from “A” to “A+”. This was the second rating upgrade in less than 11 months; the last upgrade by CRISIL happened in November 2022.

As for the benefit from the upgrade, Sachdev said, “We will see the impact of that rating. The sanctions the company got in the last two months are at a better rate. If the macro environment remains like this and the Monetary Policy Committee of the Reserve Bank of India does not change any rates, I am confident that there will be some dip (10-15 basis points) in the cost of borrowings.”
 

Sequentially, the marginal cost of borrowings declined by 10 basis points from 10.7 per cent in the June 2023 quarter to 10.6 per cent in the September 2023 quarter. However, the average cost of borrowing remained unchanged at 10.6 per cent in Q2FY24 compared to the June 2023 quarter, according to an analyst presentation.

Its net profit rose by 32.22 per cent year-on-year (Y-o-Y) to Rs 125.69 crore in Q2FY24. The Assets under Management (AUM) grew 24.60 per cent Y-o-Y to Rs 10,026.43 crore at the end of September 2023.