ICRA ratings downgrades Fusion Finance’s ratings, outlook on concerns over asset quality, profitability

ICRA downgraded ratings of the NCD programme worth Rs 180 crore to ‘A (Negative)’

Ratings agency ICRA on November 26 has downgraded ratings and outlook of Fusion Finance’s NCD programme and subordinate debt due to concerns over asset quality and profitability.

The ratings agency has downgraded ratings of the NCD programme worth Rs 180 crore to ‘A (Negative)’, from an earlier rating of ‘A+’, and the outlook was revised to ‘Negative’ from ‘Stable’, the release said.

It also downgraded Rs 55 crore subordinate debt ratings to ‘A (Negative)’ from ‘A+’, and the outlook was revised to ‘Negative’ from ‘Stable’, release added.

“The Negative outlook on the rating reflects ICRA’s expectation that the company’s asset quality and profitability shall remain under pressure in the near term,” ICRA said in a release.

Fusion Finance Ltd announced its Q2/H1 FY2025 results on November 15, wherein it reported a higher-than-expected deterioration in its asset quality and profitability.

The company’s gross stage 3 assets increased to 9.4 percent as of September 2024 from 2.9 percent as of March 2024. Consequently, the earnings were adversely impacted, resulting in a net loss of Rs 341 crore in H1 FY2025 vis-à-vis a net profit of Rs 505 crore in FY2024.

The deterioration in the asset quality was attributed to various factors including, but not limited to, adverse climatic conditions, attrition at the field level, worsening of credit discipline and overleveraging of borrowers, ratings agency said in a release.

The agency further said that given the deterioration in the asset quality and profitability, Fusion was in breach of various financial covenants (in respect of borrowings amounting to Rs. 5,618 crore) as of September 30, 2024, thus making these borrowings repayable on demand. As a result, the statutory auditor highlighted material uncertainty regarding the company’s ability to continue as a going concern as the lenders had not waived their right to demand immediate repayment from the company.

The amount of borrowings with breach in covenant had reduced to ~Rs. 5,169 crore as on November 20, 2024, release said.