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Informist, Monday, Aug. 4, 2025

 

By Aaryan Khanna and Vaishali Tyagi

 

MUMBAI – Loans against property and home loans, as well as secured business loans, are likely to drive Cholamandalam Investment and Finance Co. Ltd.'s profitability in the September quarter in lieu of vehicle finance, its largest business segment, the company's Chief Financial Officer Arul Selvan told Informist in an interaction.

 

The company aims for at least 3% return on total assets pre-tax on its overall business, and would change its business mix to achieve that goal, the top executive said. Vehicle finance saw a slowdown in the June quarter due to the early onset of the monsoon, and Selvan said it may be slow to recover as the monsoon is a dampener for commercial vehicle activity. Disbursements of loans against property rose 21% on year in the June quarter, while the vehicle finance disbursement rose only 7% on year. Disbursements in the home loan segment were relatively flat year-on-year in the reporting quarter.

 

As of Jun. 30, the assets under management of the non-banking finance company were at INR 2.08 trillion, up 23% year-on-year. Pre-tax return on assets was 3.1% for the full portfolio, but 2.4% for vehicle finance and 3.8% for loans and property in the June quarter.

 

"If you are asking specifically Q2 (Jul-Sept), it (vehicle finance) will slowly come out of the current problem," Selvan told Informist on Friday after its June quarter earnings. "So, it will, it may not return all of the 3% plus ROTA (return on total assets), but then there are other segments like loan against property or home loans and SBPL (Secured Business and Personal Loan). These will return the 3% plus ROTA, which will compensate for this shortfall."

 

Selvan said the company's operational expenses would continue to be high as it spends on personnel and infrastructure related to its new business segments, including loans against property, loans to small- and medium-enterprises and gold loans. The last segment is the latest the non-bank finance company has entered, launching in the June quarter. It had made 75 new branches for gold loans and disbursed INR 1 billion of loans in the reporting quarter. Employee benefit expenses rose 35.2% on year to INR 9.24 billion in the June quarter.

 

"Generally, our opex (operating expenses) is always high because we have separate teams for each of the businesses and we run them as separate verticals, which takes the cost out, but then it is also necessary to keep the losses down and bring in more focused approach towards growth and management of the asset profile," the chief financial officer said.

 

The non-banking finance company Thursday reported a net profit of INR 11.36 billion for the June quarter, up 20.6% on year but down 10.3% sequentially. The company's asset quality worsened, provisions rose and business growth stagnated during the quarter. On Monday, shares of the company ended 3.5% higher at INR 1,472.10 on the National Stock Exchange.

 

In the June quarter, credit costs rose to 1.8%, while analysts had expected it to increase to 1.6%, in line with the company's earlier guidance that loan losses and provisions as a percentage of assets would tick up seasonally in the June and September quarters. Cholamandalam's asset quality across segments deteriorated in the June quarter.

 

Other than vehicle finance, non-performing loans built up in the micro-loans segment as the non-banking lender was exiting loans it had extended in partnership with financial technology firms, the chief financial officer said. Microfinance loans have come under stress since mid-2024 due to poorer collection efficiencies as a result of natural disasters in some states, as well as legal challenges.

 

"The other segment, which saw a little bit of a spike, is the consumer and small enterprises loans here because we were exiting the fintech loans, which we had generated through fintechs," Selvan said. "And we are confident that as we move into Q2 and Q3, we should be able to contain these things and keep the overall (credit costs) for the year number closer to last year."  The management had upped its guidance for credit costs to 1.4-1.5% in 2025-26 (Apr-Mar), from its earlier guidance of 1.3% and against 1.4% in FY25. 

 

Regarding the INR-550 billion fundraising from non-convertible debentures approved by the board, Selvan said the approval was taken to provide operational flexibility. It may not tap the entire line in FY26, the executive said. He also said the firm's monthly borrowings are in the range of INR 70 billion-INR 100 billion to repay existing loans and drive fresh growth, through various sources including bank borrowing, overseas borrowing and the domestic fixed income market. 

 

Selvan also said the regulatory approach of the Reserve Bank of India in recent months has been more conducive for and favourable towards non-bank lenders, and its liquidity push will also help in the sector's growth. He also said the new gold lending norms, issued in June, were more suitable for the needs of lenders on the ground.

 

The central bank rolled back increased risk weights on banks' lending to NBFCs from 125% to 100% from April 1, 2025. The RBI had also infused over INR 8.5 trillion of durable rupee liquidity into the banking system between December and June. Further cash reserve ratio cuts of 100 basis points are scheduled between September and November-end.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Saji George Titus

 

 

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