Good morning everyone. We welcome you to the earnings conference call of Cholamandalam Investment and Finance Company Limited to discuss the 1Q FY 2026 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, and 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.
Thank you Nischint, you know, 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 - June faced uncertainty largely on account of the U.S. tariff and trade policy concerns and also geopolitical risks 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 2025 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 2026 was at INR 24,325 crore. 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 INR 2,07,663 crore. We launched the gold loan business in Q1 of FY 2026 and have opened 73 independent branches in gold loans as of June 2025. Our net interest margin improved marginally from 7.6% in Q1 FY 2025 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 on the respective reset dates. Our tight control over cost levers resulted in reduced OpEx from 3% in Q1 to 2.9% in Q1 FY 2025 to 2.9% in Q1 of FY 2026.
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 three 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. Landslides and water logging and 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 three assets as of Q1 FY 2026. PBT for Q1 FY 2026 stood at INR 1,530 crore, 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 2025. 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 Q1 FY 2026 was 18.8% as against 18.9% in Q1 FY 2025. In terms of liquidity, we hold a strong position with total liquid asset holdings of INR 17,226 crore, including G-Sec 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 one 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. Let me stop for those comments, Nischint, and we'll be happy to take it over. Take it over to questions.
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.
Thanks, Nischint.
Within 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 really explains this stress in the vehicle finance segment?
Hi Suresh, this is Ravindra Kundu. In vehicle finance mainly, two things are important. One is the vehicle capacity utilization and how the economy is actually doing well or not. In the first quarter, if you see, 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.
The vehicle operators are, in any case, in the first and second quarter, they actually struggle for paying the first EMI, and the customers who are in the zero bucket move to the first bucket. Some customers who are in bottleneck in stage two move to stage three. For the seasonal effect, there is a problem, and then a little bit on the macro side also there is an issue. We are hoping that this early arrival of rain, if that gets over by the middle of September or first week of September, then there will be very good agriculture growth. Festivals are slightly starting in the quarter two end itself. If that happens, then we start seeing some good result coming from quarter two itself. Otherwise, quarter three onward, you will see better result and that will improve our performance for the year in vehicle finance.
What about other segments when everything has gone up Q-on-Q, the LAP, the home loans, the personal loans, CSEL, everything?
We have been saying that LAP, HL, SBPL, SME and mortgage-based SME lending, where all the divisions were at the rock bottom level of the NPA. 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. In the case of HL, we said that it will be 0.6% and in LAP it will be 0.3%. That is what the range is. 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'll 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 -three years' time. To that extent there will be slight increase going to be and an 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 %-0.5%, HL will be 0.6% - 0.7% and they are delivering the ROA also whatever we have said that.
Okay, thank you.
In our case the problem is actually if you see that the vehicle which is actually gone up from 1.9% - 2.1% and in the CSEL where the fintech book we are running it down there. The NCLs are high range. There are two businesses where we are seeing that we more than expected level of NCL which is going to get sorted out by the end of the year, quarter four onward things will start looking a little better.
Thank you.
Thank you.
The next question comes from the line of Dhaval Gada. Dhaval, you can unmute yourself and ask a question.
Hi sir, thanks for the opportunity. Just one clarification and one question. First is on credit cost.
For the full year you I think sir mentioned on the channel that it should be 1.4% - 1.5% and therefore should we expect this to be similar or slightly lower next quarter and then a meaningful improvement in 2H. That's one clarification and second is on growth. I was a little surprised with the degrowth in home loan in terms of disbursement last quarter. We were thinking about 15% - 20% full year growth. The ask rate for 2H, sorry, for the rest of the year is about 20 + and plus. You still maintain that or is there any change to overall growth thought process at the lower end of your band?
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%.
Asset growth is actually at 30% level in the first quarter. We have seen that, as Chairman mentioned in his opening remarks, that in some of the market 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. In general, housing loan will be around, you know, 10% disbursement only for this year because we have not started expanding further and we are focusing more into OpEx reduction. That is the home loan story. When it comes to the overall NCL, overall NCL last year we did 1.4%. If the rains get over ahead of time, then we will get a little benefit in quarter two. Otherwise, quarter two will be at a similar level where we are today. Quarter three onwards we will see the reduction coming up.
If the rural economy improves after the agriculture group picks up and a little bit of improvement comes from industrial production also, then obviously we will be closing our NCL near the number where we were last year. Otherwise, you can conservatively take it as a 10 basis points increase over last year.
Understood. Just one clarification then on growth. Since you said 10% for HL, for VF you still maintain 15% plus VF growth. Similarly, if you can give your thought process for LAP and CSEL as well.
See, vehicle finance, we thought that from quarter one onward the disbursement, the market will at least start showing single-digit growth. On the contrary, my industry, all the manufacturers are showing -5%. Put together, SIAM data is showing that -5% in terms of unit, and against that we have registered 7% growth.
Most of the product lines we have achieved the increase in market share except one or two products where we have actually deliberately not taken market share high. We are doing better than industry. We are hoping that this disbursement will pick up from quarter two itself, because quarter two this time, unlike last year, the festival is starting from the 25th of September itself. Some benefit will come in the month of September and October also. Put together, the projection is that we can actually start seeing double-digit growth as soon as possible. Whether we will be reaching 15% or not all depends on how the agriculture growth pans out for the full year and how the industrial production and other important parameters for GDP also start improving in the second half.
Understood.
CSEL and overall growth then for disbursement for FY 2026.
The CSEL is actually because we have cut down INR 1,500 crore of disbursement quarterly from the fintech partnership book and almost INR 500 crore disbursement we have cut down from the supply chain finance, another 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 INR 2,000 crore, and we could have achieved 10% growth if you consider that. In the case of CSEL, the strategy is to basically focus on traditional and increase our CD and in-house digital lending book. By the year end of quarter four onwards, we'll start seeing better increase in terms of the asset as well as disbursement from CSEL and CD. We have started gold loan, and the initial start is very good.
We will see some benefit coming from gold loan business.
Got it. Thank you, sir, and all the best.
Thanks. The next question comes from the line of Avinash Singh. Avinash, you can unmute and ask a question.
Yeah, thanks. Good morning. Thanks for the opportunity. Just two questions. The first one is, again, just to clarify, this 1.4% - 1.5% full year credit cost guidance. This is basically on total, I mean, balance sheet assets, not necessarily on loans. 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 last year Q1 when we, I mean, the industry had the issue of the heat wave and electrical problems. Since then, even the H2 recovery was hoped, that did not play out.
Just my question is, broadly, just not one specific category, is this the new normal? I mean, in the business, the kind of a credit cost or asset quality that is seen and your recovery hope that for H2 now, given yes, the monsoons are doing good, but then there are, you know, the floods and extended monsoon 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 this U.S. tariff and all that also has kind of linkages to certain MSME sectors.
In all this backdrop, when you have a, the CVs as a sector is not doing well, there's 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, you know, better than what they did last year, or rather they will improve at all? Thanks.
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 that is the situation at the current point in time. In general, if you observe the trend, usually with the festival season, you do see an improvement in the October, November, December quarter. That's the only observation we're making at this stage.
I don't think we want to define it as a new normal because the environment in India keeps changing, and that is our reality. I think that's our approach at this stage.
Sir, the credit cost, that 1.4% - 1.5%, that's on total assets or the loan assets?
Yeah, that is the way we calculate and we are talking. We are not going to change the calculation, so it will be on. Yeah.
Okay, very clear. Thanks.
Next question comes from the line of Shubhranshu Mishra. Shubhranshu, you can unmute and ask.
Yeah.
Hi, good morning. Thank you.
Announce the company.
Right. Hi, this capital. Can you hear me?
Yeah. Yes.
Right. Hi. 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, nine years. 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 TIV discussions have we had so far with the top OEMs that we work with? Thanks.
This 75 golden 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 at the overall level. We are more into the tier three, four, five. In fact, 90% of the branches are in tier three, four, five, six.
As initially the gold loan branches are going to open up, they will be opening in the tier one and then they will move to tier two, tier three. That's a thing. Second is that as far as the payouts and this thing is concerned, Chairman mentioned in his opening remarks that quarter two always comes with pay hike and therefore it slightly can go up. At the same time, we are working on increasing the productivity. Finance is increasing productivity. They are curtailing their OpEx at 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 have come down to 2.9% as against 3%. We would like to basically keep it at a 3% level even in quarter two, quarter three.
With the manufacturer, we are discussing with them. They are also having a concern that the numbers are not going. Therefore, they want to work very closely with us. Our market share is also improving in segments in the vehicle finance. That is because of the very, very close engagement with them.
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, you know, 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.
All the branches across all the segments, whether it is new and or old businesses, they are co-located mostly. Only thing is that SME are more into tier one.
CSEL is tier one, tier two, tier three. SBPL is more into tier three, tier four, tier five. Depending upon the product, what we are doing and type of customer, we are selecting the branches. Almost all of the branches are co-located with vehicle finance branches.
Thank you so much. Best of luck for ensuing quarters.
Thank you.
Thanks. Next question comes from Abhijit Tibrewal. Abhijit, you can unmute and ask your question.
Yeah. Thanks, Nischint. Two, three questions. First thing is vehicle. You said the growth of 15% will be possible if economy picks up, festive season is good. 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.
What we are 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? A related question here is while you said earlier onset of monsoons, weak economy within vehicle, Ravindra, 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? That is 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 are we going to see a large part of the benefits in our cost of borrowings? Yield this time was a little muted.
What was the quantum of interest income reversals that we saw in this quarter? The last question is again on the overall growth that we are targeting this year. Ravindra, I'm just trying to understand, if you look at segments today, right, while these are smaller segments for you—unsecured SME, 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've reported earlier have called out weakness in these segments, where both the demand, basically growth, and asset quality, credit costs, are taking a beating. Would you want to slow down a little bit in some of these segments—unsecured business, working capital loans, micro-LAP SBPL? Will that kind of lead to us growing at the lower end of the guidance that we gave out in the last earnings? Thank you so much.
Let me take the interest question first. You'll see, as I was saying earlier, the benefits have not flown in much in Q1 on cost of funds. It is hovering at the same level because the bulk of the cost of fund reduction in the form of repo rate reduction came at the back end of the quarter. 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 more from Q3 onwards because banks have not started giving the entire benefit out. Net-net, for the full year, you should see 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 5 basis points-8 basis points by way of yield reductions in the floating risk book. I would say we should see around 12 basis points-1 5 basis points net impact on NIM, purely because of the customers.
Yeah. So, Vijit Ravi here. Now, the Chairman has already mentioned that we are seeing that across segments, the economy is slow, and it is likely to improve in the second half because we are going through two issues. One is 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. If you take the SME, there are two types of SME, different finances have discussed about it. Our SMEs are purely a mortgage decision, whether it is SBPL or, say, C SEL, sorry, SBPL, SME, and LAP.
Only in the case of CSEL , they have unsecured business loan, which is very smaller. The unsecured SME is not doing well. Secured SME, 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 resolved through either SARFAESI or through the normal traditional route of arbitration. Our NCLs are under control as per the projected level. As far as the SBPL or SME or LAP or even HL for that matter, the mortgage business, we are not slowing down any disbursement. In fact, in the case of C SEL and SME, we were the first to take a decision to cut down the fintech business last year and now stopped it completely. We have also decided to cut down the supply chain finance.
Also, loading is here, 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 - 6%, we are + 9%, light commercial vehicle + 5%, + 5%, small commercial vehicle - 12%, we are - 1%, passenger vehicle - 1%, industry we are + 2%, three wheeler, it is flat. My industry, we are 15%. Two wheeler is actually - 6%, we are + 16%. Only in the case of tractor, where we see that the rate competition is very high, we have taken conscious call not to reduce our pricing and therefore we are at flat. In the case of construction equipment, we are similar level of the market.
We are working with all kinds 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, which is helping us to keep our numbers higher.
Got it? Got it, sir. Thank you for patiently answering the questions and I wish you and your team the very best.
Thank you.
Thank you. Just two instructions before we move ahead. One is, participants, please state your name. Please state your company name before you start asking questions. The other thing is that we have a hard stop at 11:30 A.M., so just be a little brief with your questions. Kunal, your line is unmuted. You can ask your question. Kunal Shah.
Yeah, thanks Nischint.
Firstly, if we look at the performance of the Q1, was it maybe given the environment, was it like below our expectations? Eventually, maybe you indicated festive and maybe early monsoons getting over that would help. 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 excluding the external factors, what we are doing. 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. Given this kind of disbursements now, where do you see the overall growth settling? Will it be at the lower end of the guidance at 20% or maybe even below that?
Any measures which you are taking either in terms of pruning the growth or maybe boosting the growth?
Yeah, the calibration of underwriting and collection mechanism is a continuous process and it actually improves when you have a tough time. As we mentioned about, you know, a 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. We were also very clear about it that some of the markets are basically negative in terms of repayment. We have done it from quarter four itself. In vehicle finance, they have been continuously improving their underwriting models. Those are important things. We also mentioned that this year is actually a year of collection, not the year of disbursement.
We are trying our level best to ensure our first bucket collection is actually very good and roll forward rates are lower. If you continue to do that, then obviously we'll start getting benefit from the quarter three onwards. In terms of the loan losses, loan losses are actually not because of the current collection. It is also because of the roll forward happened in the past. Our job is to ensure that whatever roll forward happened, how can we curtail into stage two or stage one in the next quarter. That is the reason we are saying that if the economy improves, that will help us to achieve our goal.
And growth guidance?
Growth is actually what you said is right because we have been discussing 20% - 25% but we will be, you know, actually trying to achieve at least the lower level of 20% without fail.
Let's see, you know, it will depend on the second half also. We are at 23% now, so, you know, if it deteriorates then only it will go down to 20%, otherwise we'll be maintaining the same level.
Thanks, thanks. Yeah, that's helpful.
Next question is from Mahrukh Adajania. Mahrukh, you can unmute and ask your question.
Yeah. Hello sir, Mahrukh from Nuvama. Sir, I had a couple. Actually, I had only one question. It's already been discussed. Last year we were expecting improvement. Of course, there was heat wave, there was MFI, and therefore all NBFCs had indicated that they are tightening their collections and yet the expected improvement in the third quarter did not come around. Are we really seeing on ground, is that the feedback on ground? Monsoons happen every first quarter, sometimes delayed to second quarter.
It looks like we've given up all the COVID, post-COVID recovery. Right. We are back in terms of NPLs to September 2022 levels in vehicle finance. Are we seeing enough on ground factors and feel goods to assume that there will be a massive recovery in the third quarter? 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. It's really very hard for us to assess then if there is any geography specific thing or any segment specific thing like mining, you know, that will help us better understand this issue. Otherwise, it's very hard to assess. Right. All the gains post-COVID look like being erased in the last four, five quarters.
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. This year again we are seeing that this is early on 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. 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 two, stage three used to be 10%. We are at actually 7%, still much lower than that. Our effort is to achieve best result, but it depends on this, you know, environment and, you know, condition in the market.
Yes sir. I was not talking about pre-COVID, post-COVID. I was just talking about post-COVID.
In the third quarter of 2023, the recovery that we saw, the GS2 was 2.2% or something, then GS3, sorry. Anyways, thank you, thank you. Thanks a lot.
Thank you. Pranav Tendolkar, you are next. You can unmute and ask a question.
Hello, can you hear me?
Yeah, go on, go on.
Yes, yeah, yeah. Sir, it's not just you, but there are many other NBFCs and banks that have flagged two-wheeler, three-wheeler, and unsecured retail asset quality worsening. Isn't it just monsoon, or is it over-leverage of retail people, like retail asset class, that is having a problem? How do you assess it different from, say, a seasonal factor versus a structural topping of leverage that a retail asset class can take? Thanks a lot, sir.
No, it is more seasonal and also related to the economy of the country, as of now slightly looking slow.
Both put together are actually impacting on the NCLS and NPL and likely to improve from quarter three after having better result coming up, mainly in the rural market and after the agriculture growth starts showing up.
Right, sir. Right. This is, I think, fourth or fifth quarter for us for asset quality little bit worsening. Just gets me worried a little bit. Thanks a lot for the confidence, sir.
Thank you.
Thanks. Next question from Viral Shah.
Hello. Yeah, am I audible?
Yes, yes.
Thanks, Nischint. This is Viral Shah from IIFL Capital. Sir, two questions largely. One is, see, historically we have been kind of more counter-cyclical in terms of growth. Whenever we have seen early signs of stress, we have tended to be more conservative, pull back. We saw some glimpses of it in FY 2025 in the vehicle finance segment.
In two-wheelers, we had pulled back, you were referring to that a few quarters back. Now, when you compared the growth rates for OEMs and versus now what we are doing, are we actually seeing now signs of structurally underlying environment improving and again we are being counter-cyclical and starting to gain market share and growing aggressively on the vehicle side? That is one. Two is on non-vehicle 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. Does that mean that now we are going to relatively pull back on growth in these segments? 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 mix change, adverse mix change on the asset side because we will be growing, probably the non-vehicle finance book may grow a bit slower. Also, have we passed on any incremental rate cuts on any of the fixed rate products also, so vehicle finance and any of those things. Thank you.
On the interest rate, on the fixed rate we have not started passing on. Even if that happens, it will be more on the marginal book and it is not on the existing book. The existing book benefit should accrue as we tend to press the borrowings related to those lending on the floating rate book.
Actually, the floating rate book is growing better. If you look at both LAP and HL , their AUM growth is about 30%. They still have a lot of growth coming through and funding for that would continue. As we move on in the near term, we should actually also benefit more in LAP because balance transfer in will be more is what I look at. If there are rate reductions that are happening both from our side as well as from the market sector.
You are right. Two years back we said that the rural economy was not looking great. At that point in time, we observed two years of back-to-back bad monsoon. We cut down our tractor funding as well as two-wheeler funding ahead of the time. Now that is not the case and our vehicle finance is predominantly into the rural market.
We see that every year, last year onward, the milestone is actually looking better. That is the reason some of the product which we were not doing 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 -5% to 7%, plus 75, plus 7%. In the case of unsecured SME, our percentage is hardly anything. It is in the consumer and small enterprise loans which is 7%, very small to the other players. Therefore, we do not have any problem and we do not want to increase also significantly there. In the CSEL , we are trying to increase consumer durable. In our in-house digital lending book and consumer and small enterprise loans traditional book, which is actually almost a INR 500 crore, INR 600 crore book, they remain at same level.
We have curtailed the number of inquiry and in the case of, say, number of loan which is existing customer coming for the second or third loan. Thereby, curtail the or tighten the credit term last year itself. We are expecting that that portfolio also will start. In fact, if you see that CSEL, NCL from quarter four to quarter one is start slowing now, though the numbers are looking very high, and from quarter four of this financial year you will see that CSEL, NCL will further go down.
Got it, sir. Just one clarification on the comment that Arul sir had made basically on the NIM benefit of, say, around 50-odd basis points from here on incrementally. Does this take into account the benefit of the CCD conversion which will come on NIMs?
Is that 7.5% so that when it will be substituted by similar loan on their conversion.
It's not when we are growing, we are borrowing more than INR 1 crore every month so that would get subsumed in that.
Okay, but just I was thinking from a leverage perspective, the leverage may reduce
INR 2,000 crore getting converted into equity will give a very marginal benefit, but on an overall INR 1,74,75,000 crore borrowings.
Got it, sir. Thank you.
A next question comes in from the line of Zhixuan Gao. You can unmute and ask your question.
Hey, this is from Zhixuan from Schonfeld. Thanks so much for the opportunity. Just want to understand a bit more on the credit cost guidance. 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. This sort of implies the 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. Just want 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. Second half versus first half will be quite material. Is that the way that we should understand it?
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%. We are starting from 1.8%, and that's the reason we are 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, you know, 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 little bit better result can come. The trajectory of the NCL will be starting from 1.8%. It can either be 1.8% in the second quarter or will be 1.7%.
Got it. That's clear. Lastly, on the growth story, the 15% vehicle finance for this full year, is that loan growth or disbursement growth?
Asset growth.
Asset growth is actually at 18% level. What we said is 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.
10% to 12% disbursement growth for the vehicle finance. How about the overall disbursement growth this year?
That's what we are saying. Overall disbursement growth for the company.
Company .
For a company. We are at flat level as of now.
No, he is asking full year growth.
Yeah, 10%. Yeah.
10%. Okay, got it. Thank you so much. All the best for the next caller. Thank you.
Thank you.
The next participant is Raghav. Raghav, you can unmute and ask a question.
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? Also, what is used CV segment doing and what are you picking up in terms of truck movement on the ground? I ask this because I see that your disbursements growth in M&HCV has been slowing down while LCV has been picking up.
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.
The gold loan is actually purely a new customer. We have not given it to our existing customer. In the case of vehicle, we have never given the segmental, you know, data of any product line. In general, the NCLs are higher in 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 segment in the commercial vehicle.
In tractor specifically. I think the industry has been fairly optimistic in terms of growth because of the rainfall being good. Why is it that there are higher NCLs in the tractor portfolio?
Higher NCL is actually because of the old. The stage two is actually even for the tractor has improved.
Understood. Okay, thank you. That's all from my side.
Thank you.
Next question comes from the line of Piran Engineer. Piran, you can unmute and ask your question. 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. You can unmute and ask a question.
Hello?
Yeah, go on.
Yeah, hi, this is Renish from ICICI Securities. Sorry sir, just again going back to the vehicle finance business. You know, so many players are highlighting stress in this segment. Some are saying UCV, some are saying new retail CV. Just from our perspective, we have been gaining market share.
Just wanted to understand your broad strategy about why to gain market share when there is a stress. You also mentioned that Q2 is sort of looking weak and in that scenario, while we might continue to gain market share, how will we ensure that we are onboarding quality customers and not leading to a cycle.
In vehicle finance, we have tightened the underwriting norm as I mentioned and we are working more closely with the manufacturer. There are two things. One is that when you work more closely with the manufacturer, you get a first rate of rejection. First rate of rejection means you get a best quality of customers. Second is that if your underwriting models are tightened, then rejection rate goes up and in spite of you increase market share, you get to good quality of customer. 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 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 is improving and it will be further improving after this demand gets over. That will help us to basically maintain our quality in time to come.
Got it. Just a clarification. You are saying our rejection rate in vehicle finance currently, let's say, would be higher than two years back,
Higher than the past.
Yeah, yeah. Okay. And okay. We are still gaining market share at the dealer's point.
As far as all these products are concerned, small commercial vehicles and all, we have tightened our credit policy. In terms of the acquisition stage itself, customer acquisition stage itself, the filtration is going in, and plus, when you are in the first right of refusal at major counters, we are not active across. That is helping us in acquiring the best of best customers. We are not running after that.
Another thing is that when the market is looking bad, manufacturers are also down. 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 the great idea we have seen.
Got it. Basically, we are gaining market share at the dealer's point and not gaining market share by expanding the distribution.
I mean, how one should look at this.
Both happening. Distribution is already being continued there. As we mentioned in the past, our resident locations have gone up to 700 towns where we will have the branches in time to come. The network is more than 1,613 branches.
Okay, that's it for my sector. Thank you and best of luck.
Next, we are moving. We are checking back with Piran Engineer. Unmute and ask your question. There is no response from his line. We are moving on to Hardik Shah. I think you can unmute and ask your question.
Thank you for the opportunity. Can you hear me?
Yes.
Perfect. Sir, my first question is on the asset quality in the vehicle finance space. Given that we have seen elevated stress for few consecutive quarters, how has the loss given default trended across product types, commercial vehicle, used vehicles?
Is there anything different that you are seeing versus historical trends?
LGD has remained at the same level. As of now, there's no change in LGD. Loss on sale on the asset, whatever we repurchase, it is 30%, 32% - 35%, varies from product.
Understood. Okay, and 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% - 25% or the lower end of 20% growth guidance? How are you thinking about it?
You're saying vehicle finance, you're saying it doesn't go up, then how will you achieve 20% growth?
Yes.
At overall level?
Yes. Yes. Yes.
Obviously, if one business goes down significantly, it will impact the overall growth.
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%-22% asset growth. Anything goes down, will it further reduce the overall growth.
No. You are saying that you are okay with achieving lower growth versus guidance if vehicle finance were not to improve, not grow significantly on other segments. Is that understanding correct?
No. Vehicle finance, we said that. Our disbursement is at 7% level in the quarter one. Here, our disbursement is going to go up only because we are seeing that the manufacturer and dealers have started stocking the vehicle and preparing for the festivals. With that, the indication is that it will go up to 10%-12% if that happens.
Obviously, if vehicle finance disbursement remains at the same level.
I think the question is if vehicle finance growth does not come, then what happens, right? In general, our perspective has been that we do have the opportunity because of the overall portfolio to see if other businesses can basically fill up some of that drop. Is that your question? That's basically how we would manage it. If vehicle finance continues to be muted in the second half, then we will look at mix from other businesses like LAP , home loans, and some of those.
Got it, got it. My last question is on the MSME versus commercial vehicles or vehicle finance. Overall, we see profitability trends in MSME. MSME has improved while that for vehicle finance has come off. 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?
Mainly, our lever is only one here between them. MSME, all businesses are basically a secured business and they are asset-backed. MSME has a lower NCL and SARFAESI benefit is there in order to get back, and those are appreciating assets. In the case of vehicle, it is a depreciating vehicle. If you repossess, then the NCLs are high and we are at higher level of NCL, which is actually dragging the route of vehicle compared to the auto ecosystem, what we are 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.
Understood. Okay, thank you. Thank you for your answer, sir.
Thanks. We move to Abhishek Muraka.
Abhishek, you can unmute and ask a question.
Yeah, hi. Thanks, Nischint. I'm Abhishek Muraka from HSBC. The first question is that in CSEL, how much of it is unsecured business loan and can you give some cuts in terms of ticket size, geography, customers where you're seeing stress? Is there anything specific to note over there? How much of the CSEL is actually partnership based? By when does that run? That's my first question. I'll just come back for a quick second question as well.
CSEL partnership, INR 2,500 crore balances between the CSEL business loan, personal loan, professional loan and CSEL CD and D2C.
That's all.
Isn't it? Everything is unsecured. Entire CSEL is unsecured. Only that CSEL is only unsecured. So that's 7% of book.
Yeah. Outside of the partnership business, are there any particular pockets of stress or is it across all these different segments?
No.
One is that the CSEL business loan, which is having little higher NCL than what we expected. 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. The disbursements are at same level what we used to do earlier. Last year we used to do INR 500 crore. Now also we are doing similar level.
Okay, so the CSEL business loan is how much?
CSEL business loan is almost
INR 7,000 crore.
INR 7,000 crore.
INR 7,000. Okay. Within this INR 7,000, 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 .
Across the country.
In the CSEL business loan, actually the problem was where the customers have multiple loans. That was around 5%. It's not concentrated in a particular geography. It is spread across.
Okay. 5% of the INR 7,000 crore book.
Yeah, are having a multiple.
Mmultiple loan. Okay, that helps. Okay. The second question is when I see a vehicle finance slide, the assignment part for this quarter is just INR 6 crore. It was INR 9 crore last quarter. It's been coming off. What is the plan? 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?
See, actually we have not been doing assignment for a long time and of late some demand came from one specific bank which, you know, wanted LAP book.
Since we have a long and a large relationship with them, we have started doing some assignment over the last two quarters. That has been restricted to LAP. We don't want to go around seeking assignment, especially in vehicle finance or other core vehicle finance. We do a lot of securitization. That is not shown greatly because that is coming as part of borrowing.
Yes, understood. Okay. Okay. Thanks so much and all the best. Thank you.
Thank you.
Thank you. We'll take the last question from the line of Nidhesh Jain.
Thanks for the opportunity. I'm Nidhesh from Investec. Two questions. Firstly, in your products do you see cross sell opportunities, synergies of one of cross selling your product to same customer, and are you looking at the business from a customer lens or from a product lens?
Secondly, how do you benchmark yourself in terms of technology with your peer group within the NBFCs, specifically the top NBFCs?
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 second loan or commercial vehicle customer is going for car loan or two wheeler loan. As of now, we are not cross selling LAP against vehicle finance or vehicle finance against LAP . That cross selling across the divisions is not happening. It is happening within the division, only restricted to within.
It happens like when the customer inquiry comes, we do that. It's not that we don't do those products, but
We don't drive that.
We don't drive it as a cross sell product.
It naturally happens because
One of the things we started from an analytics perspective is looking at the propensity of customers. 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. We are definitely making that transition from a product based view to a customer. I think that's a shift that we're beginning to make.
We are also using our internal bureau data, our existing data to leverage on the cross sell as well.
Yeah, but the opportunity in the cross sell is more into if you do CD and then give, say, personal loan. That opportunity is more. Our CD book is very small, and our digital lending as of now, we are doing INR 100 crore, is actually coming from the existing customer.
Sure, sure. On technology, how do you benchmark yourself?
I think we are having a best IT team. I think we can say that. Most of the loan origination system is, you know, internally developed fully. We are, you know, relying on the LMS being supplied by very, very top notch, you know, IT company, and all other, you know, subsystems are also developed internally.
Okay, that's it for my side. Thank you.
Thank you.
T hank 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.