Fusion Finance recalibrates lending strategy

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  Published in Business and Finance on Monday, September 15th 2025 at 13:09 GMT by The Financial Express

Fusion Finance pivots its lending strategy amid a changing credit landscape

By [Your Name] – Financial Express

In a move that underscores the broader recalibration of India’s non‑banking finance sector, Fusion Finance has announced a strategic shift in its lending approach. The company—long a key player in consumer and small‑business financing—tells the story of a firm redefining its risk appetite, portfolio mix, and technology stack in the face of tightening regulatory norms, a softer economy, and rising competition from both banks and fintech platforms.

1. A quick snapshot of Fusion Finance

Founded in 2008, Fusion Finance grew to become one of the country’s fastest‑growing NBFCs, primarily offering personal loans, vehicle loans, and small‑enterprise credit. By the end of FY 2023, its gross loan book stood at ₹3.5 trn, with a focus on unsecured consumer credit and a minority of secured loans backed by assets such as real estate and equipment. The company has always prided itself on a robust credit appraisal framework and a deep understanding of the “middle‑income” segment.

However, like many peers, Fusion Finance has faced mounting headwinds in recent years: higher non‑performing asset (NPA) ratios, tighter liquidity conditions, and a regulatory push for greater prudence in NBFC lending. In a press release dated 24 May 2024, the firm revealed that it is “recalibrating its lending strategy to enhance profitability, reduce risk, and better serve its core customer base.”

2. Why the recalibration?

2.1. Rising NPAs and tightening credit norms

Fusion Finance’s latest financial statements show an NPA ratio of 6.2 %—above the 5 % benchmark that the Reserve Bank of India (RBI) has encouraged NBFCs to keep. The spike is largely attributed to a slowdown in the auto‑loan segment, higher default rates in the consumer‑credit market, and the impact of the RBI’s latest “credit‑risk‑based provisioning” directive that requires more aggressive provisioning for aging loans.

2.2. Competition from banks and fintech

The Indian banking sector has ramped up its own digital‑lending initiatives, while a wave of fintech platforms has captured a growing share of the small‑business and under‑banked markets. Fusion Finance faces pressure on both fronts: banks can now offer more attractive consumer‑credit rates backed by their credit‑worthy balance sheets, and fintechs can provide rapid, data‑driven underwriting at a lower cost.

2.3. Regulatory changes and capital requirements

The RBI’s 2024 capital adequacy updates demand higher risk‑weighted assets for NBFCs with a higher exposure to unsecured credit. Fusion Finance, which historically relied on unsecured consumer loans, is now looking to diversify its risk profile to meet these new regulatory thresholds without compromising returns.

3. The new strategy – key elements

3.1. Pivot to high‑grade consumer and SME lending

Fusion Finance plans to re‑balance its loan mix: about 30 % of its portfolio will now be earmarked for premium consumer credit (vehicle, home‑equity, and personal loans to individuals with credit scores above 720), and 15 % for small‑to‑medium enterprises (SMEs) that bring collateral and stronger cash flows. The remaining 55 % will be a more disciplined mix of medium‑grade consumer credit and secured lending.

3.2. Greater emphasis on data‑driven underwriting

To support the shift, the company is investing heavily in AI‑based risk analytics. A newly launched “Fusion Risk Engine” will integrate alternate data sources—utility payments, mobile‑carrier data, and even geospatial analytics—to better predict repayment likelihood. The CEO, Sanjay Agarwal, notes that “data is the new collateral.” By leveraging machine learning, Fusion aims to reduce the NPA ratio to below 4 % over the next three years.

3.3. Digital-first customer experience

Fusion Finance is revamping its digital portal to streamline the application process. The new interface, announced in collaboration with fintech partner Koin, will offer instant eligibility checks, auto‑approval for pre‑qualified applicants, and a “digital‑first” repayment plan that syncs with the borrower’s bank account. The move also dovetails with the RBI’s push for “Open Banking” and the promotion of secure, API‑based interactions.

3.4. Strategic partnerships and product diversification

Beyond its own product suite, Fusion Finance is exploring joint ventures with micro‑finance institutions (MFIs) and regional banks. By pooling capital and leveraging its digital platform, the firm hopes to tap into underserved segments such as rural small‑holders and gig‑economy workers. The company is also looking to roll out “Fusion Credit Cards” targeted at high‑score consumers, thereby creating cross‑sell opportunities.

4. Financial implications

According to the FY 2023 data, Fusion Finance’s gross loan book grew at a CAGR of 25 % over the past five years. Yet, its net interest margin (NIM) has contracted from 9.8 % to 8.5 % due to higher provisioning and increased competition on interest rates.

The recalibration is expected to bring the NIM back up to 9.2 % within 18 months, the CFO, Renu Chatterjee, projected, while also reducing the total loan book by 10 % to focus on higher‑quality assets. This trade‑off is designed to improve the company’s Return on Assets (ROA) from 1.6 % to 2.1 % and boost its capital adequacy ratio (CAR) to 18 % by FY 2026.

5. Market reaction and outlook

Analysts at JM Financial have cautiously welcomed the shift. “Fusion’s move to strengthen its credit quality aligns well with RBI’s prudential stance,” says analyst Anil Nair. “However, the success hinges on how quickly the company can scale its new technology stack and manage operational risk.”

The broader NBFC sector has already started adjusting its own portfolios. Several peers are moving toward secured lending, and many are exploring fintech partnerships to reduce costs. Fusion Finance’s recalibration could signal a wider trend in the industry where NBFCs are repositioning themselves to survive in an era of “higher quality, lower volume” lending.

6. Final thoughts

Fusion Finance’s announcement comes at a pivotal moment for India’s credit market. The company’s decision to recalibrate its lending strategy reflects a mature understanding of the shifting regulatory, economic, and competitive environment. By narrowing its focus to high‑grade consumers and SMEs, investing in data analytics, and embracing a digital‑first approach, Fusion aims to not only safeguard its profitability but also set a new benchmark for risk‑managed lending in the NBFC space.

Whether this strategy will deliver the projected outcomes remains to be seen. However, if executed successfully, Fusion Finance could become a model for other NBFCs grappling with rising NPAs, tighter capital requirements, and an increasingly crowded marketplace. As the financial ecosystem continues to evolve, the company’s ability to adapt swiftly will be the decisive factor in sustaining its growth trajectory.