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Informist, Friday, Aug. 1, 2025

By Aaryan Khanna and Vaishali Tyagi

NEW DELHI - Cholamandalam Investment and Finance Co. Ltd. guided for its loan losses as a percentage of its assets, or credit costs, to be 1.4-1.5% in 2025-26 (Apr-Mar), the lender's management told analysts in a post-earnings conference call. The management had earlier guided for credit costs to fall to 1.3% in FY26 after its March quarter earnings from 1.4% in FY25.

Credit costs rose to 1.8% in the June quarter, while analysts had expected an uptick to 1.6%, in line with the company's earlier guidance that credit costs would tick up seasonally in the June and September quarters. Cholamandalam's asset quality across segments deteriorated in the June quarter. In vehicle finance, which makes up over 50% of the firm's loan book, the credit cost was 2.2% in June, from 1.6% in FY25.

The company attributed this to the early onset of the monsoon hampering the repayment from borrowers and a slowdown in macroeconomic activity. It expects a sharp improvement December quarter onwards, and called its collection infrastructure strong. The asset quality in vehicle finance in particular is not expected to slip further, and may begin improving as early as the September quarter. Asked whether such a sharp improvement was possible between the two halves of the year, the management pointed to the credit costs decreasing from 1.5% at June-end 2024 to 1.3% by March 2025. However, in Jul-Sept, the loan losses will likely remain at 1.7-1.8%, the management said.

"I don't think we want to define it as a new normal because the environment in India keeps changing," the management told analysts. "...and we also mentioned that this year is actually a year of collection. Not the year of disbursement."

The non-banking finance company Thursday posted a net profit of INR 11.36 billion, up 20.6% on year but down over 10% sequentially. The company's asset quality worsened, provisions rose and business growth stagnated. At 1444 IST, shares of the company were down 1.3% at INR 1,424.90 on the National Stock Exchange.

In the June quarter, disbursements were flat on year at INR 243 billion, as the non-bank finance company cut down nearly INR 20 billion of disbursements from a financial technology company partnership and wound down its supply chain financing. Cholamandalam sees its disbursement growth at 10% on year in FY26, picking up pace in the September quarter itself. In FY25, the lender had disbursed loans worth INR 1.00 trillion, up 14% on year.

Vehicle finance was expected to have a sluggish quarter in June, and disbursements grew only 7% on year. The management expects this to accelerate to double-digits "as soon as possible", with some positive impact of the festive season coming towards the end of September.

Within the home loan segment, disbursements fell marginally on year to INR 17.64 billion in the June quarter but assets under management rose 33% on year as on Jun. 30. The management guided for a 10% annual increase in disbursement in home loans in FY26, and the loan book in the segment to grow 30% on year.

The overall pace of assets under management growth will also at least meet the company's guidance of 20-25%. Even if vehicle finance, the largest portfolio, continues to struggle, the company will work out a product mix to achieve a 20-22% growth in the financial year in the loan book, the management said. The lender's total assets under management were INR 2.07 trillion as on Jun. 30, up from INR 1.99 trillion as on Mar. 31.

The initial pickup in the gold loan business, which the company began in the June quarter, has been "very good", the management said. Disbursements in the quarter were INR 1.00 billion through 73 branches and 2,931 customers as of June-end. The company was not cross-selling its other offerings with gold loans and the branches remained standalone. In general, its strategy was to drive cross-selling within segments – such as a personal car loan to borrowers for commercial vehicles – rather than across verticals, the management said.

On margins, the management said the benefit of lower cost of funds will reflect more in the September quarter than the June quarter. About half of the NBFC's bank borrowings are linked to external benchmarks, which will flow into lower funding costs in the ongoing quarter. The benefits of cheaper marginal-cost-of-funds-based loans will start showing only in the December quarter. For FY26, Cholamandalam's management sees its cost of funds falling around 20 basis points beginning from the September quarter, from 7.0% in the June quarter.

Some of the benefit will be passed on to customers through yield reductions on the company's lending, the management said. Thus, its net interest margin will rise by about 12-15 basis points. The net interest margin was 7.8% in the June quarter, down from 8.0% in the trailing quarter but up from 7.6% a year ago.  End

Edited by Vandana Hingorani

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