Cholamandalam Investment and Finance Company Ltd (NSE: CHOLAFIN) Q1 2026 Earnings Call dated Aug. 01, 2025
Corporate Participants:
Vellayan Subbiah — Executive Chairman
Ravindra Kumar Kundu — Managing Director
D. Arul Selvan — President and CFO
Analysts:
Nischint Chawathe — Analyst
Suresh Ganapathy — Analyst
Dhaval Gada — Analyst
Avinash Singh — Analyst
Shubhranshu Mishra — Analyst
Abhijit Tibrewal — Analyst
Kunal Shah — Analyst
Mahrukh Adajania — Analyst
Pranav Tendolkar — Analyst
Viral Shah — Analyst
Unidentified Participant
Raghav Garg — Analyst
Renish Bhuva — Analyst
Hardik Shah — Analyst
Abhishek Murarka — Analyst
Nidhesh Jain — Analyst
Presentation:
Nischint Chawathe — Analyst
Good morning, everyone. We welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited to discuss the 1Q FY ’26 performance of Chola and share industry and business updates. We have the senior management with us represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Managing Director and CEO; Mr. Arul Selvan, Chief Financial Officer.
I would now like to hand over the call to Vellayan for his opening comments, after which we’ll take the Q&A.
Vellayan Subbiah — Executive Chairman
Thank you, Nischint, and Kotak for hosting this call. Good morning, everyone. Happy to take you through the performance for this quarter. As a backdrop, here is a quick glance on the economic environment that prevailed. The global economy during April to June faced uncertainty largely on account of the U.S. tariff and trade policy concerns and also geopolitical risk in the Iran-Israel conflict. Growth outlook has been revised downwards for most major economies.
In a bid to stimulate growth in India, RBI took various measures to maintain liquidity in the economy and reduced interest rate by 25 bps in Q4 FY ’25 and 25 bps in April and 50 bps in June. In general, while market rates reflect the reduction in rate immediately, typical — banks typically transmit these reductions over the next few quarters once their FD rates are reduced. Hence, the positive impact of RBI’s monetary actions is expected to take effect over the rest of the fiscal year.
In terms of our performance through the quarter for disbursements, aggregate disbursements for Q1 FY ’26 was at INR24,325 crores. Disbursement growth was muted in Q1. There was a marginal decline in the disbursements in home loans due to changes in the home registration process in a few key markets. Another contributing factor was our conscious call to exit the partnership business in the consumer loan segment. In terms of AUM, despite lower disbursements, our AUM growth continued to be robust at 23% year-on-year and now stands at INR2,07,663 crores.
We launched the gold loan business in Q1 of FY ’26 and have opened 73 independent branches in gold loans as of June 2025. Our NIM improved marginally from 7.6% in Q1 FY ’25 to 7.8% during the quarter. It is expected to improve in the coming quarters with the impact of repo rate cuts flowing through when banks reduce their MCLR and the benefit of EBLR rate movements accrues to the respective — accrues on the respective reset dates.
Our tight control over cost levels resulted in reduced opex from 3% in Q1 to 2.9% — Q1 of FY ’25 to 2.9% in Q1 of FY ’26. This may see some increase in Q2 due to pay hikes to employees in their annual appraisal, which is traditionally effected in July of every year. Our credit costs have increased in Q1 by 30 bps over the previous year, primarily due to stress in the market in both the auto and the consumer loan segments. Our Stage 3 numbers have increased to 3.16% in June 2025 from 2.81% in March 2025. The early arrival of monsoon significantly ahead of its usual schedule has impacted movement of vehicles, resulting in lower vehicle utilization during these periods.
Land slides and water logging in open cast mines hampered the earning capacity of operators and elevated stress on their ability to meet loan obligations, resulting in deferrals of payments. Concerted efforts by our team have ensured no sharp spike in delinquencies. Our provision coverage stands at 43.72% on our Stage 3 assets as of Q1 FY ’26.
PBT for F1 — Q1 FY ’26 stood at INR1,530 crores, which is a growth of 21% year-on-year. PBT ROA for the quarter stood at 3.1%, which is lower by 10 bps compared to Q1 of FY ’25. While the Q1 ROA reflects a transitional impact from the market, the underlying business fundamentals remain robust. The strategic focus on improving asset quality and continued refinement of product and pricing strategies positions us for ROA recovery in the coming quarters. The ROE for Q1 FY ’26 was 18.8% as against 18.9% in Q1 FY ’25. In terms of liquidity, we hold a strong position with total liquid asset holdings of INR17,226 crores, including G-SIC and T-bills. The ALM is comfortable with no negative cumulative mismatches across all nine buckets. Our capital adequacy position stood at 19.96% with Tier 1 capital of 14.31%.
In terms of the outlook, with inflation softening considerably, monsoon being favorable and festive seasons commencing in Q2, the economy is expected to bounce back if risk factors such as an extended monsoon and geopolitical issues are in check. A rebound of agricultural income will result in stronger cash flows and liquidity in the rural economy. With our strong collection infrastructure, we expect credit costs to come down post the festive season in Q2.
So let me stop with those comments, Nischint, and we’ll be happy to take it over to questions.
Questions and Answers:
Nischint Chawathe
Sure. We can start the question-and-answer session. The first question comes from the line of Suresh Ganapathy. Suresh, you can unmute and ask your question.
Suresh Ganapathy
Thanks, Nischint. So just a qualitative assessment of what explains the increase in the vehicle finance NPLs? I mean, on one hand, we are seeing rural inflation being lower, but is it income levels of the truckers or freight charges not being up to expectations? What explained — what really explains this stress in the vehicle finance segment?
Ravindra Kumar Kundu
Hi, Suresh, this is Ravi Kundu. See, in vehicle finance, mainly two things important. One is that the vehicle capacity utilization and how the economy is actually doing well or not. So in the first quarter, if you see that, the industrial productions are down as compared to last year Q1. And second is that there is an early arrival of rain, which has impacted the capacity utilization in any market. So the vehicle operators are, in any case, in first and second quarter, they actually struggle for paying the first EMI and the customer who are in the zero bucket moved to first bucket and some customers who are in borderline in Stage 2 moves to Stage 3. So for the seasonal effect, there is a problem.
And then a little bit macro side also, there is an issue. So we are hoping that this early arrival of rain, if it gets over by middle of September or first week of September, then there will be a very good agriculture growth and festivals are slightly starting in the quarter two end itself. So either — if that happens, then we start seeing some good result coming from quarter two itself. Otherwise, quarter three onwards, you will see better result and that will improve our performance in the — for that part in vehicle finance.
Suresh Ganapathy
What about other segments? I mean everybody — everything has gone up Q-o-Q, the LAP, the home loans, the personal loans, CSEL, everything.
Ravindra Kumar Kundu
So one is that we have been saying that LAP, HL, SBPL and SME, mortgage-based SME lending, where all the divisions were at the rock bottom level of the NPA because if you go back to 2022, the NPAs of LAP used to be 6%, where they came down to 2%. Now normalization will happen. We have said that, and their NCLs are in line with that. Yeah. So in the case of like HL, we said that it will be 0.6% and in LAP, it will be 0.3%. And that is what is the range it is. And now when the NPAs are going up, it takes some time to get resolved. If you’re going through SARFAESI in the case of LAP, it will take one year.
And then in the case of HL and SBPL, non-SARFAESI, in the normal traditional route of arbitration, it takes two years’ time — two years’ time to three years’ time. So to that extent, there will be a slight increase going to be, and NCL will be in the range bound of that, whatever we have said in terms of the product line. For example, LAP, it will be, say, 0.3% to 0.5%, HL will be 0.6% to 0.7%. And they are delivering the ROA also, whatever we have said that. In our case, the problem is actually, if you see that, the vehicle, which has actually gone up from 1.9% to 2.1%. And in the CSEL, where the fintech book, we are running it down, there the NCLs are high range. So there are two businesses where we are seeing that more than expected level of NCL, which is going to get sorted out by the end of the year. Quarter four onwards, things will start looking a little better.
Suresh Ganapathy
Thank you.
Ravindra Kumar Kundu
Thank you, Suresh.
Nischint Chawathe
The next question comes from the line of Dhaval Gada. Dhaval, you can unmute yourself and ask your question.
Dhaval Gada
Hi, sir, thanks for the opportunity. Just one clarification and one question. First is on credit cost. So for the full year, I think sir mentioned on channel that it should be 1.4% to 1.5%. And therefore — so should we expect this to be similar or slightly lower next quarter and then a meaningful improvement in 2H. So that’s one clarification. And second is on growth. So I was a little surprised with the degrowth in the home loan in terms of disbursement. Last quarter, we were thinking about 15% to 20% full year growth. So the ask rate for 2H — sorry, for the rest of the year is about 20% plus. So you still maintain that? Or is there any change to overall growth thought process at the lower end of your band?
Ravindra Kumar Kundu
In the housing loan, we said that this year, we are not expanding. And therefore, disbursement growth will be lower and asset growth will be 30%. So asset growth is actually at 30% level. In the first quarter, we’ve seen that as Chairman mentioned in his opening remarks that some of the markets, we are seeing that housing registration processes are getting changed. Therefore, disbursements are slow, which is going to be — we will come back in the quarter two, quarter three. But general housing loan will be around 10% disbursement only for this year because we have not started expanding further, and we are focusing more into opex reduction. So that is the housing loan story.
And when it comes to the overall NCL, overall NCL last year, we did 1.4%. So it will be — if the rains get over ahead of the time, then we will get a little benefit in quarter two. Otherwise, quarter two will be at similar level where we are today. And quarter three onwards, we will see the reduction coming up. And if the rural economy improved after the agriculture growth picks up and a little bit improvement come from industrial production also, then obviously, we’ll be closing our NCL nearby the number where we were in last year. Otherwise, you can conservatively take a 10 basis point increase over the last year.
Dhaval Gada
Understood. And just one clarification then on growth since you said 10% for HL. For VF you still maintain a 15% plus VF growth and similarly, if you can give your thought process for LAP and CSEL as well?
Ravindra Kumar Kundu
See vehicle finance, we thought that from quarter one onward, the market will at least start showing up single-digit growth. But on the contrary, industry, all the manufacturers are showing minus 5% — put together SIAM data is showing that minus 5% in terms of units. And against that, we have registered 7% growth. So most of the product line, we have achieved the increase in the market share, except one or two products where we are actually deliberately not taken market share high. So we are doing better than the industry. And we are hoping that this disbursement will pick up from quarter two itself because quarter two, this time unlike last year, this time, the festival is starting on 25th September itself, so some benefit will come in the month of September and October also. So put together, the projection is that we can actually start seeing double-digit growth as soon as possible. But whether we will be reaching to 15% or not, all depends on how the agriculture growth pans out for the full year. And how the industrial production, other important parameters for GDP also start improving in the second half.
Dhaval Gada
Understood. And CSEL and overall growth then for disbursement for FY ’26?
Ravindra Kumar Kundu
So CSEL is actually because we have cut down INR1,500 crores of disbursement quarterly from the fintech partnership book and almost INR500 crores disbursement we have cut down from the supply chain finance and other low ROTA product of SME. Both put together, the disbursements are down. That is what is pulling down the overall disbursement of Chola, which would have been higher by INR2,000 crores, and we could have achieved 10% growth if you consider that. So in the case of CSEL, the strategy is to basically focus on traditional and increase our CD and in-house digital lending book. So by the year-end quarter four onwards, we will start seeing better increase in terms of the asset as well as disbursement from CSEL and CD. Parallelly, we have started the gold loan and the initial start is very good. So we will see some benefit coming from gold loan as well.
Dhaval Gada
Got it. Thank you, sir, and all the best.
Nischint Chawathe
Thanks. The next question comes from the line of Avinash Singh. Avinash, you can unmute and ask your question.
Avinash Singh
Yeah, thanks. Good morning. Thanks for the opportunity. So just two questions. The first one is this, again, just to clarify, this 1.4% to 1.5% full year credit cost guidance, this is basically on total, I mean, balance sheet assets, not necessarily on loans. So that’s the first clarification. Second one, if I were to see the asset quality trends, I mean, one or the other issue started with the last year Q1, when, I mean, the industry had the issue of the heat wave and electrode problems. Since then, I mean, even the H2 recovery was hoped that did not play out. So just my question is, broadly, just not one especially category, is this the new normal? I mean, in the business, the kind of a credit cost or asset quality that you’re seeing and your recovery hope that for H2.
Now given, yes, the monsoons are doing good, but then there are kind of the floods and extended monsoon a problem that might creep up, the floods are kind of affecting the infra and some mining related contract and works. And on top of that, I mean, I know it’s too early, but the U.S. tariff and all that also has a kind of linkages to certain MSME sectors. In all this backdrop, I mean, you have — the CVs, as a sector, is not doing well. There is a kind of a challenge from the floods and all, and then this thing. What sort of, I mean, again, gives you hope that things will improve better than what they did last year or rather they will improve at all. Thanks.
Vellayan Subbiah
See, I don’t think there’s anything kind of trying to define this as a new normal, right, which is basically — this is the environment right now and the environment right now, I mean, the economy has been a bit muted. And so that is the situation at the current point in time. So — and in general, if you kind of observe the trend kind of usually with the festival season, you do see an improvement in the October, November, December quarter. So that’s the early observation we’re making at this stage, right? So I don’t think we want to define it as a new normal because the environment in India keeps changing, right? And kind of that is our reality. So I think that’s our kind of approach at this stage.
Avinash Singh
And sir, the credit cost, the 1.4% to 1.5%, that’s on total assets or the loan assets?
Ravindra Kumar Kundu
Yeah, that is the way we calculate, we are talking, we are not going to change the calculation. So it will be on…
Avinash Singh
Okay, very clear. Thanks.
Nischint Chawathe
Next question comes from the line of Shubhranshu Mishra. Shubhranshu, you can unmute and ask your question.
Vellayan Subbiah
Hey, moderator also when you’re announcing, also announce the company.
Shubhranshu Mishra
Hi, this is Shubhranshu from PhillipCapital. Can you hear me?
Vellayan Subbiah
Hi, Shubhranshu.
Ravindra Kumar Kundu
Yes, yes.
Shubhranshu Mishra
So two or three questions. The first one is that after a very long period of time, I have seen the urban branches growing up to around 9% of the branches. This is almost after eight years, nine years. So is this like a reclassification or is this a change of strategy? That’s first. Second is that given the fact that we are hopeful of a better second half, how are we budgeting for this in terms of opex, in terms of schemes, in terms of payouts to our employees, especially in vehicle finance, what kind of TIB discussions have we had so far with the top OEMs that we work with? Thanks.
Ravindra Kumar Kundu
So the 75 gold loan branches, which got opened up are actually in the urban market, and that is the reason it has actually increased the penetration in the urban market from the branch count point of view. There is no change in the strategy. On an overall level, we are more into the Tier 3, Tier 4, Tier 5. In fact, 90% of the branches are in Tier 3, Tier 4, Tier 5, Tier 6. But as initially the gold loan branches are going to open up, they will be opening in the Tier 1 and then they will move to Tier 2, Tier 3. So that’s a thing. Second is that as far as the payouts and this thing is concerned, as Chairman mentioned in his opening remarks that quarter two always comes with pay hike and therefore, it slightly can go up.
But at the same time, we are working on increasing the productivity, finance is increasing their productivity, they are curtailing their opex to the same level. And other businesses are also not expanding the new branches and therefore, keeping their opex very tight. In spite of gold loan expenses, which is branch expenses, we have increased, our overall expenses has come down to 2.9% as against 3%. So we would like to basically keep it at a 3% level even in quarter two, quarter three. And with the manufacturer, we are discussing with them, they are also having a concern that the numbers are not going and therefore, they want to work very closely with us. Our market share is also improving in the segments in the vehicle finance. That is because of the very, very close engagement with them.
Shubhranshu Mishra
Right. If I can slip in just one last question. What is our strategy in terms of selection of branches for the new businesses that we have, which is CSEL, SBPL, SME, how do we go about — looking at a location and then saying that, okay, we will co-locate this particular branch with our VF branch here in this particular location? Thanks.
Ravindra Kumar Kundu
So all the branches across all the segments, whether it is new or old businesses, we have co-located mostly. So — but the only thing is that SME are more into Tier 1. CSEL is Tier 1, Tier 2, Tier 3. SBPL is more into Tier 3, Tier 4, Tier 5. It depends upon the product what we are doing it and type of customer, we are selecting the branches. Most of our branches are co-located with vehicle finance braches.
Shubhranshu Mishra
Thank you so much. Best of luck for ensuing quarters.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
Thanks. Next question comes from Abhijit Tibrewal. Abhijit, you can unmute and ask your question.
Abhijit Tibrewal
Yeah. Thanks, Nischint. Sir, two, three questions. First thing is vehicle, you said the growth of 15% will be possible if economy picks up, festive season is good. So what I’m trying to understand is beyond things, which are not in our control — things which are in our control basically is if we can work to gain some market share. So what I am trying to understand is, are we also trying to work with OEMs, which are beyond our top two or top three OEMs to gain some share with them? And a related question here is, while you said early onset of monsoons, weak economy, within vehicle, Ravi, sir, if you can give some color around what is weaker?
Is it new or used or any particular segments which are weaker relative to the others? So that’s my first question on vehicle financing. And then the second question for Arul sir is on margins. Sir, while we started seeing some early improvement in cost of borrowings, by when? Is it going to be 3Q, is it going to be 4Q when we are going to see a large part of the benefits in our cost of borrowings? And yield this time was a little muted. So I mean, what was the quantum of interest income reversals that we saw in this quarter?
And the last question is, again, on the overall growth that we are targeting this year. Ravi sir, I’m just trying to understand, if you look at segments today, right, while these are smaller segments for you, unsecured MSME, which we do through CSEL, SBPL, which is micro LAP, some of these segments, at least in the last three months, have started showing industry-wide weakness. Most other NBFCs who have reported earlier have called out weakness in these segments, right, and where both demand basically growth and asset quality credit costs are taking a beating. So would you want to slow down a little bit in some of these segments and secured business, working capital loans, micro LAP, SBPL, right? And will that kind of lead to we growing at the lower end of the guidance that we gave out in the last earnings call? Thank you so much.
D. Arul Selvan
Abhijit, let me take interest question first. So you’ll see, as I was saying earlier, the benefits has not grown in much in the Q1 of cost of funds. It’s hovering at same level because, see, bulk of the cost of fund reduction in the form of repo rate reduction came at the fag end of the quarter. We see that happening in Q2 onwards, the bank borrowings, 50% of the bank borrowings are EBLR linked. So that would see the full benefit coming through in Q2.The MCLR linked benefits will come over from Q3 onward because banks have not started giving the entire benefit out of it. So net-net, for the full year, you should see an overall 20 basis points sort of an improvement on account of the cost of funds. We may have to give away part of it at least five basis points to eight basis points by way of yield reductions in the floating rate book. So I would say we should see around 12 basis points to 15 basis points net impact on NIM purely because of the cost of goods.
Ravindra Kumar Kundu
Yeah, Abhijit, Ravi here. Now the Chairman has already mentioned that we are seeing that the across segment, the economy is slow, and it is likely to improve from the second half because we are going through two issues. One is that the early onset of the rain as well as there is a drop in industrial production and some of the macros are not favorable as of now. But if you take the SME, there are two type of SME, different, different finances have discussed about it. Our SMEs are purely mortgaged SME, whether it is SBPL or say CSEL — sorry, SBPL, SME and LAP. Only in the case of CSEL, they have an unsecured business loan, which is very smaller. So the unsecured SME is not doing well, but secured SME, though there is an increase in the NPL, which was projected earlier itself that it is going to go up, we are not concerned about it because it is going to get dissolved through either SARFAESI or through the normal traditional route of arbitration.
And our NCLs are under control as per the projected level. So as far as the SBPL or SME or LAP or even HL for that matter, the mortgage business, we are not slowing down this disbursement. In fact, in the case of CSEL and SME, we were the first to take a decision to cut down the fintech business last year and now stopped it completely. And also, we have decided to cut down the supply chain finance and also loaning as well, which are actually low ROTA product to increase the ROTA. Beyond that, we are not going to reduce anything.
As far as the vehicle is concerned, across all product lines, if you see the growth of SIAM, HCV is minus 6%, we are plus 9%, light commercial vehicle plus 5%, plus 5%, small commercial vehicle minus 12%, we are minus 1%, passenger vehicle minus 1% industry, we are plus 2%, three-wheeler, it is flat industry, we are 15%, two-wheeler is actually minus 6%, we are plus 16%. Only in the case of tractor, where we see that the rate competition is very high. We have taken a conscious call not to reduce our pricing and therefore, we are at flat. And also in the case of construction equipment, we have a similar level of the market. So we are working with all kind of manufacturers for all product segments very closely to keep our engagement level very high during the tough time and helping them to actually sail through this tough time for them actually, which is helping us to keep our numbers higher.
Abhijit Tibrewal
Got it. Got it, sir. Thank you for patiently answering the questions and I wish you and your team the very best.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
Thank you. Just two instructions before we move ahead. One is participants, please state the name of the — please state your company name before you start asking questions. And the other thing is that we have a hard stop at 11:30, so just be a little brief with your questions. Kunal, your line is unmuted. You can ask your question, Kunal Shah.
Kunal Shah
Yeah, thanks, Nischint. So firstly, if we look at the performance of the Q1, was it — maybe given the environment, was it like below our expectations? And then eventually, maybe you indicated festive and maybe early monsoons getting over that would help. But internally, what are the initiatives we are taking just to make sure, maybe have we made any credit filters more stringent? Or have we enhanced the collection capabilities in any of the segments, if you can highlight that, maybe ex of the external factors, what we are doing? And secondly, with respect to the overall growth, maybe 20%, 25%, which we have guided, you have indicated across the segments, how we are looking at it. But given this kind of a disbursement now, where do you see the overall growth settling? Will it be at the lower end of the guidance at 20% odd or maybe even below that? And any measures which you are taking either in terms of pruning the growth or maybe boosting the growth? Yeah.
Ravindra Kumar Kundu
Yeah. So the calibration of underwriting and our collection mechanism is a continuous process and it actually improves when you have a tough time. And as we mentioned about CSEL underwriting last year itself in the quarter four that we cut down the number of inquiries, we have reduced the trade where we are giving the business loan. And also, we were also very clear about it that some of the markets are basically negative in terms of repayment. So we have done it from quarter four itself. And in vehicle finance, they have been continuously improving their underwriting models. So those are important things.
And we also mentioned that this year is actually a year of collection, not the year of disbursement. So we are trying our level best to ensure our first bucket collection is actually very good and roll forward rates are lower. And if you continue to do that, then obviously, we’ll start getting benefit from the quarter three onwards. And in terms of the loan losses is concerned, loan losses is actually not because of the current collection this thing. It is also because of the roll forward happened in the past. So our job is to ensure that whatever roll forward happened, how can we curtail into Stage 2 or Stage 1 in the next quarter. And that is the reason we are saying that if the economy improves, that will help us to achieve our goal.
Kunal Shah
And growth guidance?
Ravindra Kumar Kundu
So growth actually what you said is right because we have been discussing 20% to 25%, but we will be actually trying to achieve at least the lower level of 20% without fail. Let’s see that. It will all depend on second half also. And if it — and we are at 23% now. So if it deteriorates, then only it will go down to 20%. Otherwise, we’ll be maintaining the same level.
Kunal Shah
Thanks. Thanks. Yeah, that’s helpful.
Nischint Chawathe
Next question is from Mahrukh Adajania. Mahrukh, you can unmute and ask your question.
Mahrukh Adajania
Yeah, hello, sir. Mahrukh from Nuvama. So sir, actually, I had only one question. It’s already been discussed. But last year, we were expecting improvement. Of course, there was heat wave. There was MFI. And therefore, all NBFCs had indicated that they’re tightening their collections. And yet the expected improvement in third quarter did not come around. So are we really seeing on ground — is that the feedback on ground because monsoons happen every first quarter, sometimes delayed to second quarter. But it looks like we’ve given up all the COVID, post-COVID recovery, right? We are back in terms of NPLs to September ’22 levels in VF. So are we seeing the enough on-ground factors and field goods to assume that there will be a massive recovery in the third quarter?
Because last time also, that was the expectation, and it did not come through and it’s kind of spilled over to the next year for different reasons. So I mean, it’s really very hard for us to assess then. If there is any geography-specific thing or any segment specific things like mining, that will help us better understand this issue because otherwise, it’s very hard to assess, right? All the gains post-COVID look like being erased in the last four quarters, five quarters.
Ravindra Kumar Kundu
So last year, I said that the quarter three will be flat, and we’ll be seeing the result only in the quarter four onwards. It happened similar level, similar way only. And this year, again, we are seeing that there’s is early arrival of monsoon, and that is what has created an issue in terms of the vehicle in addition to the market itself, the environment is slow. So if the environments are slow, the results will be in line with that only. As far as your comparison between pre-COVID and post-COVID, pre-COVID level Stage 2, Stage 3 is to be 10%, we are at actually 7%, still much lower than that. So our effort is to achieve best results, but it depends on the environment and condition in the market.
Mahrukh Adajania
Sir, I was not talking about pre-COVID, post-COVID. I was just talking about post-COVID in the third quarter of ’23, the recovery that we saw. I mean the GS2 was 2.2% or something then — GS3, sorry. But anyways, thank you. Thank you. Thanks a lot.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
Pranav Tendolkar, you are next. You can unmute and ask your question.
Pranav Tendolkar
Hello, can you hear me?
Nischint Chawathe
Yeah, go ahead, go ahead.
Pranav Tendolkar
Yeah. Sir, so it’s not just you, but there are many other NBFCs and banks have flagged two-wheeler, three-wheeler and unsecured retail asset quality worsening. So isn’t it just monsoon or its over-leverage of retail people like retail asset class that is having the problem? Like how do you assess it different from, say, a seasonal factor from a structural topping of leverage that a retail asset class can take. Thanks a lot, sir.
Ravindra Kumar Kundu
No, it is more seasonal. And then also related to the economy of the country as of now slightly looking slow. So both put together is actually impacting on the NCLs and NPL, and likely to improve from quarter three after having a better result coming up through — mainly in the rural market and after the agriculture growth starts showing up.
Pranav Tendolkar
Right, sir. And this is, I think, fourth or fifth quarter for us for asset quality a little bit worsening. So just gets me worried a little bit. Thanks a lot for the confidence, sir.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
Thanks. Next question from Viral Shah.
Viral Shah
Hello? Yeah, am I audible?
Ravindra Kumar Kundu
Yes, yes.
Viral Shah
Thanks, Nischint. This is Viral Shah from IIFL Capital. Sir, two questions largely. One is, see, historically, we have been kind of, say, more countercyclical in terms of growth. Whenever we have seen early signs of, say, stress, we have tend to be more conservative, pull back. We saw some glimpses of it in FY ’25 in the vehicle finance segment. Say, in two-wheelers, we had pulled back. You were referring to that few quarters back. Now — and you compared the growth rates for OEMs versus now what we are doing. Are we actually seeing now signs of, say, structurally underlying environment improving and again, we are being countercyclical and starting to gain market share and growing aggressively on the vehicle side? That is one.
Second is on the nonvehicle side, I think a couple of participants have pointed this out. Across various — and these are segments where we are relatively smaller as a lender. There, we are actually seeing worsening of stress. So does that mean that now we are going to, say, relatively pull back on growth in these segments? And my second question is for Arul, sir. Sir, you mentioned, of course, on the cost of fund side how it will pan out, and maybe you may have to give on some of the rate cut benefit on the floating rate book. What about the interplay of the, say, mix change — adverse mix change on the asset side because we will be growing — probably the non-VF book may grow a bit slower, and also have we passed on any incremental, say, rate cuts on any of the fixed rate products also, so vehicle finance and any of those things? Thank you.
D. Arul Selvan
On the interest rate, on the fixed rate, we have not yet started passing on. And even if that happens, it will be more on the marginal book, and it is not on the existing book. So the existing book benefit should accrue as we tend to utilize the borrowings related to those lending. On the floating rate book, actually, the floating rate book is growing better, like, if you look at both LAP and HL, their AUM growth is about 30%. So they still have a lot of growth coming through and funding for that would continue. But as we move on, in the near term, we should actually also benefit more in LAP because BT in will be more is what I look at if the rate — there are rate reductions that are happening both from our side as well as from the market sector.
Ravindra Kumar Kundu
So Viral, you’re right, actually. Two years back, we said that the rural economy was not looking great and at that point in time, we observed two years of back-to-back bad monsoon and then we cut down our tractor funding as well as two-wheeler funding ahead of the time. But now that is not the case. And our vehicle finance is predominantly into the rural market. And we see that every year. Last year onward, the monsoon is actually looking better. So that is the reason some of the products which we are not doing it in two years back or last two years, we started focusing more on that, which is showing up in our disbursement growth as against the industry growth of minus 5% to plus 7%. In the case of unsecured SME, our percentage is hardly anything.
So in the CSEL, which is 7%, very small to the other players. So therefore, we do not have any problem. We don’t want to increase also significantly. There in the CSEL, we are trying to increase consumer durable and our in-house digital lending book. And CSEL traditional book, which is actually almost a INR500 crores, INR600 crores disbursement, they have remained at the same level. We have curtailed the number of inquiry and in the case of number of loans, which is the existing customer coming for the second or third loan, so thereby curtailed the — or tightened the credit norm last year itself.
So we are expecting that, that portfolio also will start. In fact, if you see that CSEL NCL from quarter four to quarter one is slowing now, though their numbers are looking very high. And from quarter four of this financial year, you will see that CSEL NCL will further go down.
Viral Shah
Got it, sir. Sir, just one clarification on the comment that Arul sir had made. Basically, on the NIM benefit of, say, around 15-odd basis points from here on incrementally, does this take into account the benefit of the CCD conversion, which will come on NIMs?
D. Arul Selvan
CCD is at 7.5%. So that one, it will be substituted by a similar loan on their conversion. So it’s not — when we are growing, we are borrowing more than INR2,000 [Phonetic] crores every month. So that would get subsumed in that.
Viral Shah
Okay. But just I was thinking from a leverage perspective, the leverage may reduce…
D. Arul Selvan
Yeah, the INR2,000 crores getting converted into equity will give a very marginal benefit. But on an overall crores, INR1,74,000 crores, INR1,75,000 crores borrowing side, it may not…
Viral Shah
Got it, sir. Thank you.
Nischint Chawathe
Our next question comes in from the line of [Indecipherable]. [Indecipherable], you can unmute and ask your question.
Unidentified Participant
Hi, this is [Indecipherable]. Thanks so much for the opportunity. Just wanted to understand a bit more on the credit cost guide. So let’s take the higher end of your guidance, 150 basis points. First quarter, we started at 180 basis points, let’s say second quarter, 170 basis points. So this sort of imply that second half, we need to go down to somewhere about 120 basis points, 125 basis points. Now I’m just looking at this pace of seasonal improvement first half versus second half. And compared to last year, it seems that we are forecasting a much better half-on-half forecast versus last year. So just wanted to double check, is that what we are seeing right now and the magnitude of the seasonality and macro improvement second half versus first half will be quite material. Is that the way that we should understand it?
Ravindra Kumar Kundu
Last year, if you see that we actually started from 1.5%. And in the last quarter, we did 1.3% and the average was 1.4%. So we are starting from 1.8%. And that’s the reason we’re saying that this year, we might end up at 1.5%, 150 basis points. But this reduction will be coming up only from the quarter three onwards. Quarter two is still — actually, we have a monsoon, which is going to go. And if in case we get monsoon over the first quarter, in the first week of September itself, then a little bit better result can come. So the trajectory of the NCL will be starting from 1.8%. It can either be 1.8% in the second quarter or it will be 1.7%.
Unidentified Participant
Got it. That’s clear. And lastly on the growth, sorry, the 15% vehicle finance for this full year, is that loan growth or disbursement growth?
Vellayan Subbiah
Asset growth, is it?
Ravindra Kumar Kundu
Asset growth is actually at 18% level. And what we said that the asset growth will remain at 18% level. As of now, disbursement is looking 7%, which is going to go up to 10% to 12% in this financial year.
Unidentified Participant
10% to 12% disbursement growth for the vehicle finance. How about the overall disbursement growth this year?
Ravindra Kumar Kundu
That’s what we are saying overall disbursement growth for the…
Vellayan Subbiah
Company as a whole.
Ravindra Kumar Kundu
For the Company, we are at flat level as of now.
Vellayan Subbiah
No, he is asking full year growth.
Ravindra Kumar Kundu
10%. Yeah, 10%.
Unidentified Participant
Okay, got it. Thank you so much. All the best for the next quarter. Thank you.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
The next participant is Raghav Garg. Raghav, you can unmute and ask your question.
Raghav Garg
Sure. Thanks, Nischint. I’m Raghav from AMBIT Capital. Just two questions. Most of my questions have been answered. One, in the vehicle finance asset quality, can you highlight some of the broader trends across, say, the M&HCV and LCVs and also what is UCV segment doing? And what are you picking up in terms of truck movement on the ground? I ask this because I see that your disbursement growth in M&HCV has been slowing down, while LCV has been picking up. So that’s the first question. The second question is how much of the gold loan disbursements in this quarter were to the existing vehicle finance customers? Those are my only two questions. Thank you.
Ravindra Kumar Kundu
Gold loan is actually purely a new customer. We have not given it to our existing customer. And in the case of vehicle, we have never given the segmental data of any product line. But in general, the NCLs are higher into the small commercial vehicle product and tractor. These are the two products within the high. Others is slightly lower. It is not that it’s gone down, but it’s slightly gone up across all product segments in the commercial vehicle segment.
Raghav Garg
In tractor specifically, so I think the industry has been fairly optimistic, right, in terms of growth because of the rainfall being good. And so why is it that there are higher NCLs in the tractor portfolio?
Ravindra Kumar Kundu
No, higher NCL is actually because of the old book. The Stage 2 actually even for the tractor has improved.
Raghav Garg
Understood. Okay, thank you. That’s all from my side.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
Next question comes from the line of Piran Engineer. Piran, you can unmute and ask your question. Piran, you can unmute and ask your question. Piran is somehow not responding. We’ll probably wait for him to come back. In the meanwhile, we’ll take the next question from the line of Renish Bhuva. Renish, you can unmute and ask your question. Yeah. Go ahead. Go ahead.
Renish Bhuva
Yeah, hi. This is Renish from ICICI Securities. Sorry, sir, just again, going back to the vehicle finance business. So many players are highlighting stress in this segment. Some are saying used CVs, some are saying new retail CV. But just from our perspective, we have been gaining market share. So just wanted to understand your broad strategy about sort of why to gain market share when there is a stress. And you also mentioned that Q2 is sort of looking weak. And in that scenario, while we might continue to gain market share, but how we’ll ensure that we are onboarding quality customers and sort of not leading to a cycle?
Ravindra Kumar Kundu
So one is in vehicle finance, we have tightened the underwriting norm, as I mentioned, and we are working more closely with the manufacturer. So there are two things. One is that when you work more closely with the manufacturer, you get a first right of rejection. First right of rejection means you get the best quality of customers. Second is that if you’re underwriting, models are tightened, then rejection rate goes up. And in spite of you increase market share, you get good quality of customer.
So that’s the strategy we are trying that only. Second is that why we are doing now, why we have not done two years back. Two years back, we saw that the rural economy is slowing down and most of the vehicle finance branches are in the rural market. And therefore, the impact can be bad from the industry perspective environment point of view. As of now, what we are seeing, the rural economy will be — it is improving, and it will be further improving after this monsoon gets over. That will help us to basically maintain our quality in time to come.
Renish Bhuva
Got it. So just a clarification. So you are saying our rejection rate in vehicle finance currently, let’s say, would it be higher than two years back?
Ravindra Kumar Kundu
Higher than the past.
Renish Bhuva
Yeah, yeah. Okay. And we are still gaining market share at dealer’s point.
D. Arul Selvan
See, as far as all these products are concerned, see, small commercial vehicles, we have tightened our credit policy. So in terms of the acquisition stage itself, customer acquisition stage itself, the filtration is going in. And plus, when you move — when you are in the first right of refusal, like major counters, we are not active across all the manufacturers, that is helping us in getting — acquiring the best of best customers. So we are not running after them.
Ravindra Kumar Kundu
Another thing is that when the market is looking bad, manufacturers are also down. And at that point in time, if they are coming to us, that is the best time to basically gain the market share. When market is doing very well and you start gaining market, that is not a great idea we have seen.
Renish Bhuva
Got it. And so basically, we are gaining market share at the dealer’s point and not gaining market share by expanding on the distribution. I mean, how one should look at this?
Ravindra Kumar Kundu
Both happening. Distribution has already been continued to there. As we mentioned in the past, that our resident locations have gone up to 700 towns where we will open up the branches in time to come. So the network is more than 1,613 branches.
Renish Bhuva
Okay, that’s it from my side. Thank you and best of luck.
Nischint Chawathe
Next we are checking back with Piran Engineer. Piran, you can unmute and ask your question. Okay, there is no response from his line. We are moving on to Hardik Shah. Hardik, you can unmute and ask your question.
Hardik Shah
Yeah. Thank you for the opportunity. Can you hear me?
Ravindra Kumar Kundu
Yes.
Hardik Shah
Perfect. Sir, my first question is on the asset quality in the vehicle finance space. Given that we have seen elevated stress for a few consecutive quarters, how has the loss given default trended across product types, commercial vehicle, used vehicles? Is there anything different that you’re seeing versus historical trends?
Ravindra Kumar Kundu
LGD is remains same level as of now. There’s no change in LGD. Loss on sale on the asset, whatever we repurchase, it is 32% to 35% varies from product to product.
Hardik Shah
Understood. Okay. And sir, my second question is on growth. If this slowdown was to sustain in vehicle finance, are there any other levers that you think you could pull to meet your AUM guidance of 20% to 25% or the lower end of 20% growth guidance? How are you thinking about it?
Ravindra Kumar Kundu
Vehicle finance, you’re saying if doesn’t go up, then how will you achieve 20% growth? At an overall level?
Hardik Shah
Yes, yes, yes.
Ravindra Kumar Kundu
Obviously, if one business goes down significantly, it will impact on the overall growth. But our hypothesis is that the vehicle finance will be there at 17%, 18% level. And mortgage businesses will be there at 30% and CSEL and SME — CSEL business will be slightly lower. With that, we are reaching to 20% to 22% asset growth. Anything goes down, it will further reduce the overall growth.
Hardik Shah
So you are saying that you are okay with lowering — achieving lower growth versus guidance, if vehicle finance were not to improve, not grow significantly on other segments. Is that understanding correct?
Ravindra Kumar Kundu
No. Vehicle finance, we said that our disbursement is at 7% level in the quarter one. And here, our disbursement is going to go up only because we are seeing that now the manufacturers and dealers have started stocking the vehicle and preparing for the festivals. So with that, education is that, it will go up to 10% to 12%. If that happened, obviously, vehicle finance disbursement will remain at the same level.
Vellayan Subbiah
I think the question is if vehicle finance growth does not come, then what happens, right? In general, kind of our perspective has been that we do have the opportunity because of the overall portfolio to see if other businesses can basically kind of fill up some of that drop. So is that your question? So in terms of…
Hardik Shah
Yes.
Vellayan Subbiah
So that’s basically how — yeah, so that’s how we would manage it. So if vehicle finance continues to be muted in the second half, then we will obviously look at mix from other businesses like LAP, home loans and some other businesses.
Hardik Shah
Got it. Got it. And my last question is on the MSME versus commercial vehicles or vehicle finance overall. We see profitability trends in MSME has improved while that for vehicle finance has come off. So what is it that you’re seeing differently in SME versus vehicle finance space? Are we going down the risk curve there? Or how should we think about it?
Ravindra Kumar Kundu
Mainly, lever is only one here in between them. MSME, all businesses are basically a secured business and there, asset-backed MSME has a lower NCL. And SARFAESI benefit is there in order to get back and those are appreciating asset. In the case of vehicle, it is a depreciating vehicle. If you repurchase then obviously, the NCLs are higher and we are at a higher level of NCL, which is actually dragging the ROTA of vehicle compared to the auto ecosystem what we have given versus the SME ecosystem. Opex is also high in the case of auto ecosystem as compared to SME ecosystem because the ticket size in the SME is much higher than the auto.
Hardik Shah
Understood. Okay, thank you. Thank you for your answer, sir.
Nischint Chawathe
Thanks. We move to Abhishek Murarka. Abhishek, you can unmute and ask your question.
Abhishek Murarka
Yeah, hi. Thanks, Nischint. I’m Abhishek Murarka from HSBC. So sir, the first question is that in CSEL, how much of it is unsecured business loan? And can you give some thoughts in terms of ticket size, geography, customers where you’re seeing stress? Is there anything specific to note over there? And how much of the CSEL is actually partnership based and by when does that run? That’s my first question. I’ll just come back for a quick second question as well.
Ravindra Kumar Kundu
CSEL partnership, INR2,500 crores. Balance is between the CSEL business loan, personal loan, professional loan and CSEL CDR D2C. And everything is unsecured. Entire CSEL is unsecured. Only that CSEL is only unsecured. So that’s a 7% of our book.
Abhishek Murarka
Yeah. So outside of the partnership business, are there any particular pockets of stress or it is across all these different segments?
Ravindra Kumar Kundu
No, one is that the CSEL business loan, which is having a little higher NCL than what we expected. And that’s the reason we started cutting down the number of inquiry and also reducing the existing loan to keep the second loan or third loan, which is basically done in quarter three, quarter four last year itself. But the disbursements are at the same level what we wish to do. Earlier last year, we used to do INR500 crores. Now also, we are doing similar level.
Abhishek Murarka
Okay. So the CSEL business loan is how much?
Ravindra Kumar Kundu
CSEL business loan is almost INR7,000 crores.
Abhishek Murarka
INR7,000 crores, okay. And within this INR7,000 crores, do you see any particular geography like maybe Karnataka, Tamil Nadu or anything particular in terms of ticket size where the stress is concentrated? Some cuts will be helpful to understand the problem.
Ravindra Kumar Kundu
Across the country, in the CSEL business loan, actually, the problem was where the customers have multiple loans. So that was around 5%. It’s not concentrated in a particular geography. It is spreaded across.
Abhishek Murarka
Okay. 5% of the INR7,000 crores book.
Ravindra Kumar Kundu
Yeah, are having a multiple loans.
Abhishek Murarka
Multiple loans, okay, that helps. And the second question is, when I see your vehicle finance slide, the assignment part for this quarter is just INR6 crores, it was INR9 crores last quarter. It’s been coming off. So what is the plan there? Are you looking to assign more vehicle finance going forward? Or is this just a product you don’t want to do? How are you looking at that?
D. Arul Selvan
See, actually, we have not been doing assignment for a long time. And of late, some demand came from one specific bank, which wanted LAP book. And since we have a long and a large relationship with them, we have started doing some assignments over the last two quarters. So that has been restricted to LAP. So we don’t want to go around seeking assignment, especially in vehicle finance out of the course. Vehicle finance, we do a lot of securitization. That is not shown directly because that is coming as part of borrowings, so you are not seeing it.
Abhishek Murarka
Understood. Okay. Okay. Thanks so much and all the best. Thank you.
Ravindra Kumar Kundu
Thank you.
Nischint Chawathe
Thank you. We’ll take the last question from the line of Nidhesh Jain.
Nidhesh Jain
Thanks for the opportunity. I’m Nidhesh from Investec. Sir, two questions. Firstly, in your products, do you see cross-sell opportunities, synergies of selling your products to same customer? And are you looking at the business from a customer lens or from a product lens? And secondly, how do you benchmark yourself in terms of technology with your peer group within the NBFCs, especially the top NBFCs?
Ravindra Kumar Kundu
So the cross-selling, as of now, within vehicle finance, we are doing. So around 25% of disbursement is actually coming from the existing customer where the vehicle customer is going for a second loan or commercial vehicle customer is going for car loan or two-wheeler low. As of now, we are not cross-selling LAP against vehicle finance or vehicle financing against LAP. That cross-selling across the divisions are not happening. It is happening within the division only, restricted to within.
D. Arul Selvan
It happens like when the customer inquiry comes, we do that. It’s not that we don’t do those products, but…
Ravindra Kumar Kundu
We don’t drive that.
D. Arul Selvan
We don’t drive it as a cross-sell product, but it naturally happens because…
Vellayan Subbiah
One of the things we started from an analytics perspective is looking at the propensity of customers to kind of — so we’re taking each of our customer data sets, and looking at their propensity and interest in buying other products that we would start cross-selling. So we are definitely making that transition from a product-based view to a customer based. And I think that we — that’s a shift that we’re beginning to make.
D. Arul Selvan
So we are also using our internal bureau data, our existing bureau data to kind of leverage on the cross-sell aspects of some products.
Ravindra Kumar Kundu
Yeah. But the opportunity in the cross-sell is more into if you do CD and then give per se personal loan, that opportunity is more. So our CD book is very small. And our digital lending as of now, we are doing INR100 crores is actually coming from the existing customer order.
Nidhesh Jain
Sure. Sure. And on technology, how do you benchmark yourself?
Ravindra Kumar Kundu
No, I think we are having a best IT team, I think we can say that. And most of the loan origination system is internally developed. Only we are relying on the LMS being supplied by very well top-notch IT company. And all other subsystems are also developed internally.
Nidhesh Jain
Okay, that’s it from my side. Thank you.
Vellayan Subbiah
Thank you.
Nischint Chawathe
Thank you very much. That was the last question for today. We thank the management for providing us opportunity to host this call. And we thank participants for joining us today. Have a nice day.
Ravindra Kumar Kundu
Thank you.