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.

Fusion Finance has announced its intention to hold a board meeting on December 16th to discuss fundraising through Non-Convertible Debentures (NCDs). This scheduled meeting represents a significant step in the company's capital raising strategy.

Board Meeting Details

The microfinance company has set December 16th as the date for its board meeting, where directors will deliberate on the proposed NCD fundraising initiative. The meeting will focus specifically on evaluating the feasibility and structure of raising capital through debt instruments.

NCD Fundraising Strategy

Non-Convertible Debentures represent a debt instrument that allows companies to raise capital from investors while offering fixed returns. For Fusion Finance, this fundraising method could provide access to additional capital without diluting existing equity holdings.

The decision to explore NCD-based fundraising reflects the company's strategic approach to capital management. This debt instrument typically offers investors predetermined interest rates and repayment schedules, making it an attractive option for both issuers and investors seeking stable returns.

Strategic Implications

The planned discussion indicates Fusion Finance's proactive approach to securing additional funding for its microfinance operations. NCDs can serve as an effective tool for companies looking to expand their capital base while maintaining operational flexibility.

The December 16th board meeting will likely address key aspects of the proposed NCD issuance, including potential size, tenure, and interest rate structure. These deliberations will help determine the viability and timing of the fundraising initiative.