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Informist, Monday, Apr. 28, 2025

By Kshipra Petkar and Aaryan Khanna

MUMBAI/DELHI – Cholamandalam Investment and Finance Co. Ltd. plans to foray into the gold loan business by opening 100 dedicated branches in the south and east India in the next few months, according to its Chief Financial Officer Arul Selvan. The Chennai-based non-banking finance company has begun setting up these branches in southern India, Selvan told Informist.

Selvan said the company has been working on entering the gold loan business for over a year, but is in no hurry to start the business and will be "testing the waters" initially. "There is nothing like we need to, you know, take over. So we want to test the product progressively, explore it, and then grow it," the executive said.

Selvan said Cholamandalam Investment was very clear that they would not acquire the gold loan business of any other company, unlike some of their peers have done. Currently, Cholamandalam Investment has 1,613 branches, and these 100 branches will be new, dedicated branches for gold loans as they need specialised storage and security in place. They will not be co-located in the existing branches of the company, Selvan said.

While the diversified financier had not earmarked a budget for the expansion, Selvan said there would only be a limited hit to the lender's operating expenses. The cost of setting up the gold loan branches would be amortised as it would count largely as capital expense, he said. The CFO pegged its expense ratio at 3.0-3.1% in FY26, little changed from 3.0% in FY25.

While planning the foray, Cholamandalam had taken note of the draft guidelines by the Reserve Bank of India on lending against gold, Selvan said. The lender has assumed the draft guidelines will be finalised without any changes, and will not be caught by surprise as it grows the business, he said. The regulator, in the recent past, has voiced its concerns on gold loan growth and lending practices. The RBI released a draft to harmonise gold lending practices across institutions on Apr. 9.

OPERATING GUIDANCE

The lender's provisions had been strained by stress in the vehicle finance sector in the first half of 2024-25 (Apr-Mar), and Cholamandalam expects its asset quality to remain stable in the next few quarters after having provided for some deterioration of the books, Selvan said. After rising 40 basis points on year to 1.4% in FY25, loan losses and provisions are expected to decline to 1.2-1.3% of assets in the current financial year, he said. For FY25, provisions were up 89% to INR 24.94 billion.

Higher provisioning has hurt the lender's bottom line even as it continues to grow the assets under management at an industry-leading pace. Total assets under management grew 30% on year to INR 2.00 trillion as on Mar. 31, higher than the company's guidance of 25%. Selvan said the home loans and loans against property are likely to be the key drivers of the growth in its AUM, as both the nascent segments are expanding into new geographies. Moreover, the longer tenure of mortgaged loans keeps the principal amount on the lender's books for a longer time than the more volatile vehicle loans.

Selvan said Cholamandalam would rely on its diversified book to keep AUM growth at 20-25% in FY26, even if its largest segment – vehicle finance – is not driving it. He cited the struggles in the broader auto segment as the reason for the slower AUM growth in the segment at 20% on year in FY25. However, the lender has found success in some high-yield sub-segments in vehicle lending in the March quarter. Selvan expects traction to increase as the outlook for the monsoon and both kharif and rabi crops are positive, which is a bright spot for rural demand, the key market in this segment. 

Monday shares of the company closed 1.2% lower at INR 1,525.80 on the National Stock Exchange.  End

Edited by Saji George Titus

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