Fusion Finance has received a favorable resolution to its GST proceedings, with authorities dropping the case that initially involved a Rs 2.84 crore demand. The company received an order dated December 20, 2025, from the Joint Commissioner Corporate Circle, Varanasi, Uttar Pradesh, dropping the proceedings under section 73 of the CGST Act with nil demand.

Background of the GST Notice

The company had previously received a show cause notice on September 26, 2025, from the Joint Commissioner Corporate Circle in Varanasi, Uttar Pradesh. The notice was issued under section 73 of the Central Goods and Services Tax (CGST) Act, directing the company to pay a total of Rs 2.84 crore.

Allegations and Resolution

The original show cause notice had alleged that Fusion Finance claimed excess Input Tax Credit (ITC) and failed to reverse ITC as per rules 42/43 of the CGST Act, 2017, during the period from April 2021 to March 2022. However, the recent order has concluded these proceedings favorably for the company.

Current Status and Impact

According to the company's regulatory disclosure, no action is required following the order dropping the proceedings. The GST Authority has concluded the matter with nil demand, effectively resolving the Rs 2.84 crore notice that was initially raised.

Regulatory Compliance

Fusion Finance has disclosed this positive development to both the National Stock Exchange of India Limited and BSE Limited in compliance with Regulation 30 of the SEBI Listing Regulations. The company's earlier confidence in having adequate legal grounds to substantiate its position appears to have been vindicated with this favorable outcome.

This resolution eliminates any potential financial impact from the original GST proceedings and provides clarity for investors and stakeholders who had been monitoring this regulatory matter.

Fusion Finance has been assigned a CARE A (RWN) rating by CARE Ratings for its proposed ₹150 crore Non-Convertible Debenture (NCD) issue. The rating agency has also maintained the Rating Watch with Negative implications on the company's existing ₹1,500 crore long-term bank facilities. This rating action was communicated through a letter dated December 16, 2025.

Rating Action Summary

The comprehensive rating action by CARE Ratings encompasses both new and existing financial instruments:

The Rating Watch with Negative implications reflects ongoing concerns about the company's financial covenant compliance and overall credit profile.

Financial Covenant Challenges

The negative rating watch stems from significant covenant breaches affecting a substantial portion of Fusion Finance's borrowing portfolio. As of September 30, 2025, the company was in breach of financial covenants on borrowings totaling ₹2,077 crore, resulting in these facilities becoming repayable on demand.

The covenant breach situation presents a mixed picture:

Despite these covenant breaches, CARE Ratings notes that no lender has demanded immediate repayment or charged penal interest from the company.

Liquidity and Capital Position

Fusion Finance maintains adequate liquidity despite the covenant challenges. The company holds comfortable liquidity of ₹892 crore with unavailed sanctioned credit lines of ₹2,730 crore as of September 30, 2025. The company successfully raised ₹1,554 crore in funding during H1 FY26, demonstrating continued lender support.

The capital position has been strengthened through equity infusion:

Asset Quality and Performance Indicators

The company's asset quality metrics show improvement in H1 FY26, primarily due to write-offs. Gross Non-Performing Assets (GNPA) improved to 4.61% as of September 30, 2025, compared to 7.90% as of March 31, 2025. Net NPA stood at 0.38% versus 0.30% in the previous period.

Fusion Finance's Assets Under Management (AUM) declined to ₹7,038 crore as of September 30, 2025, from ₹8,980 crore as of March 31, 2025, reflecting the challenging operating environment in the microfinance sector.

Business Operations and Market Presence

Fusion Finance operates across 22 states and union territories with a diversified geographical presence. The company's top three states by exposure are Uttar Pradesh (26%), Bihar (19%), and Madhya Pradesh (9%). The company has expanded into the MSME sector, with this segment comprising 10% of total AUM as of September 30, 2025, up from 0.03% in March 2020.

The rating agency expects the company's asset quality and profitability to improve gradually, with visible improvement anticipated in FY27. The company's ability to maintain lending relationships while raising funds at competitive rates remains a key monitoring factor for future rating actions.