Operator: 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 will take questions.
Vellayan Subbiah: Thank you, Nischint, and thank you Kotak for hosting this call. Good evening, everyone. I am happy to take you through our performance for Q2 FY27. We continue to witness strong momentum across our lending businesses during the quarter, with broad-based growth across Vehicle Finance, SME, and consumer finance. Aggregate disbursements grew by 47% year on year to INR 35,872 crores, reflecting healthy demand conditions, execution strength, and continued expansion of our distribution franchise. This translated into an AUM of INR 2,68,000 crores, registering a growth of 25% year on year. In Vehicle Finance, industry volumes remained robust across key segments, supported by replacement demand, improving economic activity, and healthy freight utilization. We are particularly pleased that Chola continued to grow materially ahead of the industry, driven by market share gains, deep customer engagement, strong dealer relationships, and disciplined execution on the ground.
Vellayan Subbiah: Vehicle Finance disbursements grew by 31% year on year to INR 17,800 crores, resulting in an AUM of INR 1,29,787 crores, a growth of 21% year on year. The secured SME finance business across all key product lines, including LAP, SME, and SBPL, continued its strong growth trajectory for the quarter, with disbursements increasing by 42% year on year to INR 9,345 crores. This growth was driven by our focused market penetration strategy, strong on-ground execution, and deep engagement with channel partners. We witnessed consistent growth across all product lines, resulting in an overall AUM growth of 27% year on year to INR 72,356 crores, with LAP at INR 57,447 crores, a growth of 24%, SME at INR 10,943 crores, a growth of 45%, and SBPL at INR 3,966 crores, a growth of 35%. This reflects both the scalability of the franchise and increasing acceptance of our offerings amongst customers.
Vellayan Subbiah: Our consumer loans business, comprising housing loans, CSEL, and Gold Loans, continued to scale rapidly during the quarter, driven by our expansion of our distribution footprint and stronger relationships with channel partners. CSEL and consumer durable financing continued their momentum, leveraging our digital lending platforms. These businesses are playing an increasingly important role in diversifying our portfolio while creating a strong runway for sustainable future growth. Consumer loan disbursements grew by 103% year on year to INR 8,726 crores, resulting in an AUM of INR 45,902 crores, up 32% year on year. Growth was broad-based across product segments, with housing loans, CSEL, and Gold Loans registering disbursement growth of 43%, 103%, and 320% respectively. AUM and home loans stood at INR 25,240 crores, CSEL at INR 17,216 crores, and Gold Loans at INR 3,446 crores.
Vellayan Subbiah: The strong business momentum across these segments reflects our ability to leverage multiple distribution channels, deepen customer engagement, and address a wide spectrum of retail credit needs. We maintained NIMs at healthy levels despite a volatile interest rate environment. Our strong portfolio performance led to a reduction in credit costs by 37 bps. Consequently, our profitability improved, with margins, our PBT ROA expanding by 40 bps year on year. This translated into a stronger return profile, with ROE improving to 19.4% compared to 18.1% a year ago. Gross stage 3 improved to 3.25% in September 2026, from 3.29% in June 2026. GNPA, as per RBI norms, improved to 4.4% in September 2026 from 4.5% in June 2026. The company continues to maintain a strong liquidity and capital position with total liquid assets of INR 21,974 crores, including undrawn sanction credit lines.
Vellayan Subbiah: As of September 2026, the capital adequacy ratio stood at 20.62%, with tier-one capital at 16.02%. As on September 2026, the conversion of CCDs into equity shares was completed. Given the strong growth momentum across our businesses, the board has approved a proposal to raise up to INR 5,000 crores of capital subject to shareholder and regulatory approvals. The proposed fundraise will strengthen our capital base and provide adequate flexibility to support our future growth aspirations while maintaining healthy capital adequacy. Nishint, thanks so much. I will stop with that. We will be happy to turn it over to all of you for questions.
Operator: Thanks, Vellayan. We start with Viral Shah of IIFL. Viral, you can ask your question.
Vellayan Subbiah: Hi, Viral.
Operator: Yeah, Viral. You can now ask a question.
Viral Shah: Hello? Yeah, am I audible now?
Vellayan Subbiah: Yes.
Viral Shah: First of all, congrats on a great set of numbers. I would like to first of all congratulate for the delivery and the kind of execution that all of you have done over the last decade and a half, through the diversification, scale-up of ROE accretive segments. Vellayan, if you can throw some light in terms of, say, the capital that we are planning to raise. What would be the strategy for us over the next 3 years? Are there any new sub-segments that we plan to enter, and basically also some timing on that?
Vellayan Subbiah: I think in terms of sub-segments, we just added Gold. Gold continues to grow. First off, the capital raise is just something that we have said that we will do in a situation like this. You know, our last capital raise was now a few years ago. We continue to basically look at what we need to do to strengthen CAR and strengthen our balance sheet. It is more from that perspective that we want to strengthen, Viral. The growth will continue. We do continue to explore, I do think we have a pretty full set of segments right now, and a lot of the growth will go into existing segments itself. Like you saw, Gold Loans is growing fast. Our consumer durables business is growing fast. Even our core businesses. Vehicle Finance continues to have 21% AUM growth.
Vellayan Subbiah: Across the businesses, we see fairly healthy growth coming up. A lot of it is about how we shore up our capital to be able to handle that growth effectively.
Viral Shah: Right. Just as a clarification, when you mean to say, of course, this is more from a medium-term perspective is what you are referring to, right? Nothing kind of immediate in terms of the capital raising plans.
Vellayan Subbiah: The capital raise, we will do. It depends, obviously, on market conditions. We will be conscious of market conditions, but we will do it in the near to medium term, depending on market conditions.
Viral Shah: On the related point, Vellayan, I think you also rightfully pointed out the consumer business that has been scaling up now. It is almost three quarters wherein now we are seeing that the PBT ROA is now consistently crossing, say, 3% to 3.5% kind of a mark. Still, I think this is not the optimal profitability for the sub-segment, given that there are various other sub-segments that are folded into this segment that we see over here. Can you or rather, would you like to throw some light in terms of some of the sub-segments, consumer durable, mobile, PL, and what could be the optimal profitability looking like over here from a medium-term perspective?
Vellayan Subbiah: Yeah.
Ravindra Kundu: I think.
Vellayan Subbiah: Go ahead.
Ravindra Kundu: Yeah. The CSEL as of now has two businesses, unsecured business loan and CD and digital lending. CD, mobile, and digital lending. These are the two businesses which is being headed by Sucheth Bharathan and Vijay Kini. This business, we need to basically start showing up separately, probably from the next month, once we reach to a good size. When you see that, by that time, you will see that both the businesses are doing very well in terms of ROA. They started now delivering close to 3.6. Together, if you see that, then they can definitely deliver more than 4% pre-tax ROA. They should deliver. As soon as possible, they should deliver.
Ravindra Kundu: Here, the major benefit is going to come from the net credit cost going to go down and a little bit operating expense is going to go down, which is going to be a purely unsecured business point of view. As far as the consumer durable and digital lending is concerned, we have fairly reached the optimal number. Since it has not been shared, we are not opening the numbers. But together it can go up to 4%, definitely. They can.
Viral Shah: Got it. No, got it. That is very clear. Just last question, sir, if I may. Now, at the halfway mark for the fiscal year, we are standing at 25% kind of growth, especially with now also the scale-up of the longer tenure mortgage book, right? Would you want to revise your growth guidance for the year?
Ravindra Kundu: No, we are not revising, but we also would like to mention that Q3, Q4 have been always better than Q1 and Q2. We have to see how much better it comes. But definitely we would like to continue to deliver what we are delivering. So one is the growth, which is 25%, and one is the net credit cost, which is 1.4%. This much though we wanted to deliver, in the beginning itself for the full year. Now, since it has been achieved in the half year itself, we do not want to further take a much bigger target. Having said that, better is possible because of Q3, Q4.
Viral Shah: Got it. Thank you very much. I will come back in the queue, if at all.
Vellayan Subbiah: Thank you.
Operator: Thanks. Kunal Shah from Citi. Kunal, your line is already unmuted.
Kunal Shah: Yes. Hi. Congratulations. Good set of numbers. Firstly, in terms of the credit quality outlook, this quarter we have managed it pretty well in terms of GS2, GS3. We have almost 17% odd exposure to Maharashtra as well as Karnataka. Given this entire drought concern, how do we look at the Vehicle Finance credit cost in particular and the other segments too, because few of the players have indicated that build-up stress in few of the geographies due to drought. Would want to have your outlook and your assessment of the situation currently at the ground level.
Ravindra Kundu: See, the drought-prone area, Vidarbha, Malwa, coastal Karnataka and some part of Madhya Pradesh have been always a little bit painful in the past as well for us. Therefore, we always kept our concentration slightly lower in this market, knowingly that this market has actually given this kind of stress in the past also. Another thing is that the tractor financing is more affected by the drought, which has not been done for last 3 years in a big way. Our penetration in tractor has come down over the last 4 years, 5 years. Especially in this market, it has come down significantly. Both put together, we do not see much problem. Also our book is totally diversified with respect to the product within the Vehicle Finance, it is distributed within the geography. If you see that we have multiple geography.
Ravindra Kundu: Having said that, the concerns mentioned by other finance companies also being considered and we have evaluated that, but we do not see that kind of problem as of now. As and when we will see any problem, we will let you know in future.
Kunal Shah: Sure. We would be pretty confident with respect to the overall asset quality generally.
Ravindra Kundu: Yeah. As of now, as of now, we are confident with the H2 number better than H1. That is what is normally we have seen in the past, and we do not want to change our target. Whatever target we have given in the past, we will hold it as it is.
Kunal Shah: Sure. Second question is on home loan and LAP disbursements in particular, strong uptick both in terms of the sequential momentum as well as the YOY growth. Home loan from a low base has again gone up, LAP also compared to 2 odd percent disbursement growth, we are now almost 39%, 40% odd. You indicated in terms of the geographical expansion, but what are the other things which are really driving it and the sustainability of the same, if we have to look at it, will this to be a major contributing factor to the growth as well going forward, apart from the new businesses and the continued momentum on the vehicle side?
Ravindra Kundu: We mentioned last quarter also that home loan and LAP is also growing, but we have done some technical correction in terms of aligning our disbursement with asset recognition. Therefore, the disbursement in HLAP and little bit in SME and SBPL were not appearing last quarter, but actually they were in the same level. It is slightly for Q2 is better than the Q1 for across all businesses because last year Q2, the base was smaller for across all businesses. To that extent, there is no difference in the performance of LAP and HL with respect to Q1 to Q2. Having said that, the benefit coming because they are consistently keeping their delinquencies low and also what they expanded last two, three years. There the productivity gain has come.
Ravindra Kundu: And as we mentioned last time, last year was full of changes in terms of government norm, in terms of dis-
Kunal Shah: SRO.
Ravindra Kundu: SRO change. Last year we were moving slow. Now we have achieved goal in terms of completing all the things within the specific timeline and completing the disbursement. So the disbursement has started appearing in a better way.
Kunal Shah: The question was, say in home loan, almost INR 1,800 crores of disbursements in Q1 getting to INR 2,400 crores. In LAP also from INR 4,800 crores now getting almost towards INR 6,400 crores, INR 6,500 crores. These are now more sustainable numbers, maybe what we saw in Q2 and the growth over and above that.
Ravindra Kundu: If you see that still the majority of their business is concentrated in South as compared to rest of the countries, and they are expanding in the rest of the country as well. So, around 40% business is coming from South and 60% business is coming from Northeast and West because of the number of branches available in rest of the country. Therefore, the scope for both the businesses and also for SBPL and SME, all the mortgage businesses out of South is still pending to be penetrated. And we are hoping that within 1 to 2 years' time, the distribution of all the zone will start coming equal, and by the time they will reach obviously at a better number than what they are doing.
Ravindra Kundu: That will continue to happen and therefore the growth what we are seeing, we are hoping that this will continue for some more years.
Kunal Shah: Okay. Great. Thanks. Got it. That answers the question. Thank you.
Operator: Thanks. Next we have Abhijit from Motilal.
Abhijit Kuvar: Thanks, Nischint. Congratulations on a good quarter, and thanks for taking my questions. Bhavesh, first thing on the Vehicle Finance segment. While you have already articulated that the H2 seasonally is better than the H1, except tractors, are there any segments within Vehicle Finance which are vulnerable to droughts? The second question, again, a related one here in Vehicle Finance only, is that, we have already seen Navratri, so if you could give some sense around the festive season. I am asking this because, last year, the H2 was a little heavy in terms of some pent-up that had built in. How are we looking at the H2 in Vehicle Finance this year?
Ravindra Kundu: We got the opportunity to see how October is actually going through. We have seen that October numbers are looking much better. As of now, October numbers as compared to last year, October the growth is actually around 18% to 20%.
Arul Selvan: We will be at 18%. We will be growing on a disbursement of around 18% over last October.
Arul Selvan: This year, the advantage is that last year, the festival season was confined to only 1 month, that is October. We are getting 2 months, October and November. We expect same growth. Last year, November disbursement was very subdued. Looks like we will almost hit the same October number next month also. We are looking at almost
Ravindra Kundu: 20%
Arul Selvan: 20%, 22% growth in Q2 over last year.
Ravindra Kundu: Q3.
Arul Selvan: Q3 over last year.
Ravindra Kundu: That is the growth point of view. It looks like the momentum in terms of growth is continued. No need to worry about what happened last year in terms of base. Coming to the point what you are mentioning, one is the tractor, and secondly, the small ticket used vehicle. These other two are mostly sold in the small towns and especially the places where the cash flows are not consistent. Therefore, those vehicles are only going to get impacted, and therefore, we have been cautioned in terms of those markets with respect to the disbursement. As of now, I am saying that, this whole thing about the El Nino or drought, we have seen that some markets are actually very good in terms of the rains and still the rains are going on. The deficit is continuously getting reduced.
Ravindra Kundu: We need to wait and watch to see what is the impact going to come. It will be very clear only after maybe December.
Abhijit Kuvar: Got it. Got it, Ravi, sir. What would you say about this MSME segment? Is there some cash flow mismatches that you are seeing already in this segment or this segment is also holding up well till now?
Ravindra Kundu: See, in terms of MSME, we are financing Loan Against Property, we are financing SBPL, we are giving unsecured business loan, and also we are giving the SME term loan. Across the businesses, we see that the delinquencies are coming down. In only small market, we have seen that the loan below INR 500,000 secured loan is slightly going through tough time, which we have seen in the past itself. Now that has also started improving. MSME for our business is mostly the secured loan.
Abhijit Kuvar: Got it, sir. Last question for Arul, sir. Sir, given that you have already seen one repo rate hike, and there are more expected, just trying to understand what is the sensitivity of our cost of borrowings and margins to, let us say, a 50 basis points hike in repo rate. The other thing is, sir, capital raise that we have taken board approval for today. In the past, we used to do it much closer when the tier-one used to be lower. Is there a thought process now that going forward, capital raises at Chola Finance will start happening at a lower leverage than what we used to do in the past?
Arul Selvan: I think up to 50 basis points movement in interest cost during the H2 should move the overall cost of funds YOY by around 15 to 20 basis points. If you look at it, currently, our cost of funds is still lower as compared to last year, because last year the H1 was high and H2 was low. This year it was reverse the trend, and you will have a H1 low and H2 being high. Still, I think around 25% of my borrowing is repo-linked and 25% is linked to other benchmarks. These two are vulnerable for rate movements if persistent interest rate hikes occur. The 50%, which is on fixed rate, which is with banks or MCLR-linked. MCLR has not moved up much, but it will also start tending to move up.
Arul Selvan: This will not, in my opinion, impact finances this year. There will be more impact for the next year. As for the capital raise, we have taken an enabling resolution. We will raise it, and accordingly, at other point in time within the next six months to nine months, we will raise this capital depending on the pricing in the market, et cetera. We are in early stage, more elaborate we should later.
Abhijit Kuvar: Got it, sir. This is useful. Thank you so much, and I wish you and your team the very best.
Arul Selvan: Thank you.
Ravindra Kundu: Thank you.
Operator: Sir, just one clarification. Did you say 10 to 15 basis points rise in cost of funds for the entire year or for the H2?
Arul Selvan: For the entire year.
Operator: Okay. Second half could be slightly higher.
Arul Selvan: Second half will be higher, which will take the year-on-year rate by 15 basis points.
Operator: Got it. I think that is clear. Next we have Abhishek from HSBC.
Ravindra Kundu: Yeah.
[Analyst] (HSBC): Yeah. Am I audible?
Arul Selvan: Yes.
[Analyst] (HSBC): Yeah. Hi. Good afternoon, and thanks for taking my question. The first question is on OpEx. There has been quite a bit of jump in branches, employees, all of that. That probably has led to a jump in the employee cost as well. Is this a run rate now at roughly INR 1,400 crores? I mean, this should be a baseline or is there any one-off here and the baseline can be lower? I am talking about employee OpEx in particular.
Arul Selvan: No, employee OpEx, you are seeing that line. It has changed because we have moved a lot of people from our outsourcing
Arul Selvan: You know, entity to now we have put everybody in. If you recall, a year or so back, we moved part of them.
Arul Selvan: we have done everybody into the main company itself. That is where you see the salary cost being high compared to last year. But you see the same amount or similar amount of reduction in the outsourced cost, which you will see that there is almost like a INR 100 crore drop as compared to Q1 in spite of the volume which is on an absolute value drop. That should have been a much higher number on the outsource cost, which has been now moved into the salary cost. Overall OpEx is at the same 3% to 3.1%, which is where we have always sort of saved our OpEx very tight too.
[Analyst] (HSBC): Okay. If I look at the overall OpEx also on a QOQ basis, there is a 10% increase. What is that about? Because I can understand intra-
Arul Selvan: I will explain that. There are 2 reasons. One is because we had a salary where all of the salaries get repriced or we get an annual increment in Q2, which actually in July. So we had the full impact of this salary first coming through. The other one is when we also do our annual business week, that cost has also come into the figures. Actually, we took everybody to Australia, so that cost has been just a one-time cost, but the salary cost will continue.
[Analyst] (HSBC): How much would the one-time cost be so that we can know the actual underlying-
Arul Selvan: That cannot be shared, Abhishek. Thank you.
[Analyst] (HSBC): Okay. I hope you enjoyed though. The other question is on yield.
Arul Selvan: Only thing, Abhishek, I will.
[Analyst] (HSBC): Yeah.
Arul Selvan: Only one thing which I would like to mention from the investor presentation, page number 18. Q1 2026 was 2.9, and it went up to 3.1. As of now, it has gone up by 20 basis points. Last year also, one to two. This time it is gone up by 10 basis points. So it is the benefit for us, and that is because of the operating expenses coming down in Vehicle Finance, home loan, Loan Against Property. The old businesses, they are actually slightly better.
[Analyst] (HSBC): Right.
Arul Selvan: Some of the businesses are doing better, especially Vehicle Finance has actually come down significantly.
[Analyst] (HSBC): 3.32.
Arul Selvan: In spite of we are expanding into Gold Loans, CD, and other businesses, the Vehicle Finance has given something. So now slowly, we start seeing some release happening.
[Analyst] (HSBC): Okay.
Arul Selvan: Hopefully, we will continue to do that and try to come down a little bit. As I mentioned, for some time we will be at 3% to 3.1% level.
[Analyst] (HSBC): That's right.
Arul Selvan: In 2 years' time or 2 to 3 years' time, we would like to take it down to 2.8%.
[Analyst] (HSBC): Got it. 3.1 should not be breached, right? 3% to 3.1% for the next H2 is also something you see yourselves achieving.
Arul Selvan: For some time, it goes to 3.2% also. I should not say like that, but it will be very close to the range only. Our endeavor is to reduce it.
[Analyst] (HSBC): Got it. The second question is on yield. If I see your aggregate yield that you have disclosed, 14.9% to 14.6%, that is a 30 bps drop. If I look at your individual segment yields, there, most of the segments, except maybe Vehicle Finance or something, the yields have increased. Why is this? Am I missing something here? Why is this trend diverging?
Arul Selvan: No. See, if you look at it, you are looking at the gross level. You have to see from the published accounts, because the gain on assignment, we stopped. We did only one deal this quarter.
[Analyst] (HSBC): Right.
Arul Selvan: That is a 0.3, 0.22. So 20 bps you will get a drop in.
[Analyst] (HSBC): Oh, okay. So that should normalize next quarter.
Arul Selvan: Yeah. That will normalize because we had committed to certain banks on the assignment deals, so we have to hold on to that till we could. We have to exhaust the limit set for it. So that we have exhausted. So we may not go again for that in the near future.
[Analyst] (HSBC): On a full year to full year basis, Arul, the NIM would be flat still. Last year average was 8.05. Now we are H1 already at 8.05 roughly.
[Analyst] (HSBC): It would remain flat on a full year to full year basis?
Arul Selvan: I told you that the cost of funds will go up by 20 bps.
[Analyst] (HSBC): Right.
Arul Selvan: We are trying to stretch and get the other side of the income side to match it. Yes, we will endeavor to do it, but that is a possibility that you will have to factor in at least 10 bps on the yield.
[Analyst] (HSBC): Got it.
Arul Selvan: Which will be more or less, actually in my opinion, more than offset by credit costs.
[Analyst] (HSBC): NCL.
Arul Selvan: Which should still hold us on the overall ROA being better than last year.
[Analyst] (HSBC): Right. So 3.5 ROA, basically that is what you are varying.
Arul Selvan: Yeah.
[Analyst] (HSBC): That remains unchanged. Got it. Got it. Thank you so much, and all the best.
Arul Selvan: Thank you.
Operator: Hi. Next is Raghav Garg from Ambit. The only request that management has made is that maybe we can just restrict to two questions in the initial round.
Raghav Garg: Hi, am I audible?
Ravindra Kundu: Yes.
Raghav Garg: Hi. Good afternoon. I just have one question, and this is circling back to one of the questions which I think one of the participants asked. I just wanted to know if you can throw some light on what percentage of your Vehicle Finance customers or the number of vehicles that you financed is directly or indirectly engaged in agri and allied activities. What is that number for the industrial activity? This is just to understand that if, say, the crop harvest is impacted due to deficit rainfall, what could be the impact in terms of fleet utilization for the vehicles which are tied to those agri activities? I think you have called out tractors, but even within LCVs and SCVs, which could possibly be used to carry the agri produce from point A to point B, what would be the exposure in those sort of portfolios?
Raghav Garg: That is the only question that I have. Thank you.
Ravindra Kundu: We are only seeing one side of the thing. The deficit in terms of rain is 13%, but we are not seeing the sowing. Sowing is actually at par with the last year because of the mechanizing and pump and electricity is available. People have done the agriculture activity to the extent of what they have done the last year. At the end of the day, agriculture output is important for the customer who are basically doing that. This is a farmer. The next item is the yield. Yield is depending on the inflation. For them, luckily, the inflation is going up, so they will get a better yield, better income, and that is what is important for everyone. That is important.
Ravindra Kundu: Second is that the deficit is mostly due to the higher deficit in Northeast, Kerala, and some part of the country where the agriculture activity is less. That is the second thing. The third is that there are some parts of the country where the drought has happened, which is actually a drought area, even in the past also. So no need to worry about it as of now. We can give you all these details. Details are available with us. We have seen that we do not get impacted as of now from the deficit we have seen in general. Coming to the point, the tractor we have given the mix, it is 3% of the overall book, which is the negligible portfolio of vehicle sector. If you take entire book, then it will be much smaller. In this market, we are relatively much lower than that also.
Raghav Garg: Understood. That was my only question, and thanks a lot for that explanation.
Operator: Next question from Shreya from Nomura.
[Analyst] (Nomura): Yeah. Thank you for the opportunity. Sir, just circling back on the NIMs portion. My first question was, have we decided to hike our lending rates, in which product, from what timeline, or are we still looking at market practice before we take any decision over there? That's my first question. Second is on the distribution reform on the insurance piece has been a big reform for credit life product. What has been our conclusion? Have we come at some maths around how much of a hit can happen to our ROA, ROEs, et cetera? Those are my two questions. Thank you.
Ravindra Kundu: Actually, one is important is that in any case, the overall yield goes up by the overall collection and other income also. We have seen that the H2 overall yield goes up automatically for us. You can actually see H1 to H2 comparison that comes because of as you do collection, other income like foreclosure charges collection, other things, short-term collection, revenue collection goes up. That's the one important thing to address the yield itself. Then coming to the increase in the cost of fund. As we get the cost of fund reference rates from the finance and treasury, our businesses are continuously incorporating it and increasing it in terms of the marginal lending.
Ravindra Kundu: Second is that as and when the floating book is basically ready for increase the pricing, that much we will do it. As of now, we have a 25 basis point, so maybe affordable housing and low-risk property SME, they will do it within one or two month time. They are working on it. This is what the yield side. As far as the insurance is concerned, obviously, if the insurance income is going down, obviously we need to figure out how to basically make the revenue line up to the mark in that. Therefore, we deliver 3.5% pre-tax ROA. We have done the working. Working is ready. Obviously, we are waiting for the final conclusion, and once that is done, then only we will give.
[Analyst] (Nomura): Right. Just a clarification on the repricing. You said these are the three seg. Which was the third segment, affordable housing, SME, where within one to two months you will reprice. Can you mention the third segment that you mentioned?
Ravindra Kundu: Loan against property. Floating book, basically.
[Analyst] (Nomura): Oh, all the floating book.
Ravindra Kundu: Yeah.
[Analyst] (Nomura): Obviously. Yeah. All right. Okay. Insurance, you will let us know after the draft reforms are out, is it? How much
Ravindra Kundu: Yes
[Analyst] (Nomura): hit on our All right. Okay. That is useful. Thank you.
Operator: Yeah. Next, we have Nidhesh Jain from Investec. Nidhesh, you can ask your question.
Nidhesh Jain: Hi, sir. Thanks for the opportunity. DA income, going forward, we will not do any DA income, or is that a right understanding?
Arul Selvan: DA is a thing that if liquidity requires me to do, I will do. If there is a bank which is a large relationship and they want us to also participate in some of their initiatives, we will do. It is not like a no or always a yes. We try not to do as much as possible because it leads to upfronting of the profit and then the expense comes at a later date. To that extent, we have been avoiding. Broadly, we have also internally decided to keep anywhere between 5% to 7% of the book as an assigned book. That is what we will work towards to keep that.
Nidhesh Jain: Sure. Second, on the Vehicle Finance, if I look at the number of branches, that has been broadly flattish. We have not added branches in the Vehicle Finance for some time. What are the plans for next year in terms of branch addition and Vehicle Finance?
Ravindra Kundu: No, you have to see both branch and resident location. Resident location, they are continuously increasing it and put together they are based to almost 2,600, no? What is the number to put together? 600. 1,600 plus 600. 689. So that is the number. That number is going up, so there is no problem. They will convert these resident locations from the RLS to the branch, and then open up the new RLS. That is the continuation.
Arul Selvan: We are moving some 125 RLSs to branches because they are already hit a critical disbursement numbers. That will happen. Then once that process continues, then we will add more RLSs. It is a work in progress item and we will see the numbers going up in the coming.
Nidhesh Jain: Sure. That is it from my side. Thank you.
Operator: We have Piran Engineer from CLSA. Piran, you can ask your question.
Piran Engineer: Yeah. Hi, team. Congrats on the quarter. Just going back to Shreya's question, in another way, have we hiked PLR and home loans and LAP already, or is there a plan to do it this month?
Arul Selvan: We have not yet thrown the quarter, this quarter. We are sending it to them. We will do it.
Piran Engineer: Sorry, sir, can you
Arul Selvan: We have not done. We will do it in this quarter, coming quarter, Q3.
Piran Engineer: Okay. Got it. Secondly, what explains the surge in disbursements in CSEL in the last couple of quarters? It has been fairly strong. Can you talk a bit about your sourcing profile, loan yields, and how we have just suddenly been able to ramp it up so fast?
Arul Selvan: Not suddenly. It is not suddenly that we have ramped up. We have been doing our homework in the last couple of quarters, and then, we had our underwriting model in place. We had our credit scorecard in place, and then, we were confident enough that this sourcing is in a better position, and that is why we were able to scale up. This is unsecured part. Unsecured. Talk about what you have done, CD, mobile.
Ravindra Kundu: On the CD side, the growth is coming from the mobile financing. We had partnered with Samsung to begin the CD business, but however, over the last 12 months, we have ventured open market and we have tie-ups with all the other OEMs on the mobile space.
Ravindra Kundu: We have been operational across the country, in majority of the tier 3, 4 markets and that is where the scale of business is coming for us on the CD side. Also last year was a little bit base effect is there, because last year we reduced it. Last year was like, we went up INR 2,000 crore per month, INR 1,200 crore per month. From there, we have come down, and now we have come to the same level what we used to do, including the partnership business, we used to do what number we have done this quarter. So it is like doing the similar number, but because of the base,
Piran Engineer: Yeah
Ravindra Kundu: the cassette is looking better.
Piran Engineer: No, no, correct. You are without the partner and you are doing the same amount of business and the partner was big. Is it fair to say that a lot of the growth in disbursements on a YOY basis has come from CD financing?
Ravindra Kundu: Both. CD is major. Major is from CD. 40% growth is because of the CSEL and secured also and base effect. Business loan and personal loan.
Piran Engineer: Okay, 60% is from CD. Okay, fair enough. Lastly, sir, your views on CV and car demand going forward.
Arul Selvan: Yeah, as of now it looks very steady and growing very steadily. We just reviewed our business, Vehicle Finance business. The outlook we have given. Just go to the next page.
Piran Engineer: Yeah. Actually, sir, because your outlook next 3 years in every segment is a lower growth,
Arul Selvan: Yes, sir.
Piran Engineer: number than the past 3 years. Yeah, the industry outlook that you have given. That is why I would prefer to hear your views from the horse's mouth.
Arul Selvan: Okay. Just give me one second. Ritug, I will tell you, product by product in Vehicle Finance, what they have done and what we have given. The heavy commercial vehicle segment recorded robust growth of 40% in Q2 and 20% in H1, achieving its highest-ever H1 sales. The industry demand was supported by strong freight movement and this looked like it will be continued in the second half. So maybe, we may not get this 40% growth what market has delivered in Q2, but I think 20% growth is 30, 22%. 30% to 20%, I am talking from the industry point of view. Yes. Is possible. But we need to see that. As of now, for the month of October, it looked like they are delivering around 18% growth. In November again, due to Diwali, they will again deliver better number than last year November.
Arul Selvan: For Q3, it looked like 20% plus growth will come from the market. This is especially from heavy commercial vehicle. Light commercial vehicle also recorded 25% growth in Q2. Small commercial vehicle recorded around 26% growth. Passenger vehicle recorded 31% growth. Two-wheeler recorded 15% growth. All put together, it looked like worst case scenario, 15% to 20% growth will come in the H2.
Piran Engineer: Sir, sorry, I am referring to the charts that you have put on slides 30 and 31.
Arul Selvan: Okay.
Piran Engineer: Where you have got like a prior 4-year CAGR and then a future 3-year CAGR.
Arul Selvan: Yeah.
Piran Engineer: That is what I was referring to, actually.
Arul Selvan: Which slide is this? That is industry number only we are talking about.
Piran Engineer: Yeah. I will take this offline. I do not want to hold up the queue.
Arul Selvan: Okay.
Piran Engineer: Yeah. Thank you, sir, and wish you all the best.
Arul Selvan: Thank you.
Operator: Thanks. Next, we have Sanket Chheda from DAM Capital.
Sanket Chheda: Yeah. Hi, sir. Pretty good set of numbers. I just wanted to get a sense on the capital raise. Historically, we have been pretty mindful on keeping our anchoring on ROE and, likewise, structuring the raise in equity and, say, convertible warrants or debentures. This time also, do we expect a similar structure?
Arul Selvan: Yeah. We are looking at both options, either a full equity or a breakup. We have been quite successful in the CCD conversion and that route, but we need to see the appetite in the market and decide. As we come closer to the date, we will decide.
Sanket Chheda: Okay. Sure. Besides this year, we are reasonably confident of doing around 24% to 25%. Usually whenever, say, after a couple of years of muted growth, we do well for a span of 2, 3 years. Do we expect a similar kind of a growth for next couple of years, if at all you would want to spell that out?
Arul Selvan: We still hold to that 20% to 23%, on a steady state basis, because there are volatilities that is possible. As we go closer to the year, we will change our stance.
Sanket Chheda: Okay. Sir, on cost of funds, I get a guidance for the H2 and then for the full year. This quarter, I think the reported cost of funds have moved 10 bps, but when you look at absolute basis, on a calculated basis, the uptick seems more like 17, 18 bps. Is there anything there, a particular borrowing would have cost more or it will get regularized or corrected in the following quarter? Just wanted to understand about the absolute finance cost being a little higher in this quarter.
Arul Selvan: No, it has moved up as compared to last quarter by 10 bps.
Sanket Chheda: Okay.
Arul Selvan: I don't know where you want to
Ravindra Kundu: Sanket, maybe you can take this offline with him, sir.
Sanket Chheda: Sure, sir. I will understand from you. Lastly, I wanted to ask, speaking from the earlier questions on new businesses, say, likely to be ROE attractive. If I were to take a view for, say, 2, 3 years now, our guidance is anchored on PBT ROA of 3.5, but, say, after 2, 3 years, when the new products also become reasonable size, do we expect this PBT ROA to converge closer towards 4 on an entity basis?
Arul Selvan: It has lacked counterattractions before. They say, "No, let us hold it. Let us see them get the traction on these new businesses and let them settle down, and then we will change.
Sanket Chheda: Sure, sir. Those were my questions. Thanks a lot.
Operator: Thanks. Next question comes from Harshit Toshniwal of Premji.
Harshit Toshniwal: Sir, am I audible?
Arul Selvan: Yes.
Harshit Toshniwal: Yeah. Sir, this question was on the Gold Loan piece itself. I think a few ones that fund for us, like some of the peers called out the issues with respect to the short-term loan stage 2, stage 3 recognition, and then therefore shifting to the long-term loans. Are we also facing something like that? Or if you can help us that in our mix, what would be the portion of the short-term loans, less than 5-month, 6-month loan?
Arul Selvan: No. Not short-term loan. It is related to EMI-based funding versus bullet loan.
Harshit Toshniwal: Bullet loan means
Arul Selvan: 12-month term bullet loan.
Harshit Toshniwal: Right.
Arul Selvan: If you lend the customer based on the EMI, where the customer has to serve the EMI. In this business, we have seen in the past and when we studied that, most of the customers are not paying EMI. In the beginning itself, we decided to go for bullet loan.
Harshit Toshniwal: Bullet. Yeah.
Arul Selvan: Wherever the customer has requested, said that, "No, I want EMI," then we have given, but negligible. It is actually overall book, we have seen that 1%, no?
Harshit Toshniwal: Yeah. It is less than 1%.
Arul Selvan: Less than 1% book is EMI. Therefore, that kind of delinquency is not there. If you finance EMI-based, then your delinquency will be high.
Harshit Toshniwal: For us, the entire expansion this time has been on the bullet loan-based model itself, largely, predominantly.
Arul Selvan: Yes, majorly it is actually. Mostly. Not mostly. Everything is actually bullet loan.
Harshit Toshniwal: Everything is bullet. Got it, sir. Also, if you can give some context of the Gold Loans prices started to moderate, but we are there into the midway in our Gold Loans expansion journey itself. How should we look at this book growing? It is obviously growing at a much rapid pace today, but if you can help us with our branch expansion outlook, where we stand today. It will be easier for us to build that business out. How can that be a growth lever for the next 2, 3 years?
Arul Selvan: No, we are selectively identifying the market and the branches, then looking for the people to run those branches. Then only we are deciding to open up the branches, not that we are just having a 1,000-branch opening plan of this. Last year we have opened 120. This year we are opening some 360 branches.
Harshit Toshniwal: 360 branches. So by end of this year, we should be at around 980 branches.
Arul Selvan: We will continue to open the branches, but not that we have to open up very large number of branches. We need to see whether the branches we have opened up are reaching to the critical AUM level. Like, for example, phase 1 branches as of now, per branch AUM is
Harshit Toshniwal: INR 21 crores.
Arul Selvan: INR 21 crores. We need to see what is the phase 2 branches. Our branch opening is depending upon the achievement of the productivity level, and second important is that whether our processes are working very well or not. As long as that is working, then it is steadily opening and cautiously opening.
Harshit Toshniwal: Sir, is that 450 branches, what you mentioned, by end of this year, at 20 odd crore per branch, it would be more around INR 9,000 crore AUM.
Arul Selvan: INR 20 crore is from the first
Harshit Toshniwal: first phase.
Arul Selvan: phase one branches.
Harshit Toshniwal: Got it.
Arul Selvan: Yeah.
Harshit Toshniwal: Phase 2.
[Company Representative] (Chola): This was opened last year.
Harshit Toshniwal: Got it.
Arul Selvan: Then phase 2 also, we have to reach to the critical level, which is like a threshold between 15 to 20.
Harshit Toshniwal: Yeah.
Arul Selvan: And like that, we need to plan.
Harshit Toshniwal: Understood, sir. Got it. Perfect, sir. Thank you.
Arul Selvan: Cool.
Operator: Hi. Next we have Shreepal Doshi from Equirus.
Shreepal Doshi: Hi. Thank you for giving me the opportunity, sir, and congrats on a good set of numbers. My question firstly was on the growth side. Given that last year H2 had a higher volume growth, especially in the Vehicle Finance segment, the OEM growth. So in this year's H2, do we expect some slowdown there on a YOY basis? Secondly, just to add to that, given the macro challenges and drought-like situations on the bigger markets, do you see any slowdown there if things worsen by December, as you are highlighting that you will get a better picture by then. So in that case, what is the range in terms of the growth that you would want to highlight?
Arul Selvan: No. First of all, by December, we are saying that those districts which have been impacted, those are very limited market which have got impact. What is going to happen in those small portion of the country, that only will be clear by December. As of now, sowing is not impacted. In spite of rains are down or deficit is there, in spite of that, sowing has not been impacted. That is what I was saying. The big market is not impacted. Most of the market where the kharif is actually getting cultivated. Most of the market we have seen that rain deficit is not there. The rain deficit would move into the Vidarbha, Malwa, some part of Madhya Pradesh and some part of Karnataka. These are the
Shreepal Doshi: Drought
Arul Selvan: drought-prone districts where this has happened. So we don't see that is going to impact the growth momentum. That is point number one. Point number two is that as of now, because of the base, the growth momentum will get slowed down. That is what is not visible as of now, going by the October, and momentum also looks like it will be continued in the H2. The percentage of growth will go down as compared
Shreepal Doshi: Got it.
Arul Selvan: to H1 to H2, but it will not go down so low that we start saying that it is slowing down.
Shreepal Doshi: Got it. Our full year guidance of 20% to 23% holds, right? Or it is now 24%, 25%.
Arul Selvan: We hold our commitment, whatever we have given in terms of growth.
Shreepal Doshi: Got it. The second part, since some of the smaller and high-yielding segments have started to grow at a much faster rate, what is the mix that you see by FY28 and especially products like CSEL and SBPL in terms of the overall mix?
Arul Selvan: We have said that, the vehicle is 52% as of now. HL is around 10%, 22% is the LAP. The mortgage, which is close to 36%, 37% put together, is likely to slightly go up by 2028, 2029. Exactly, we cannot say which year. But within three to four years' time, we are expecting mortgage business to go up because they are funded for longer tenure, and Vehicle Finance, which is financing for five to six years, obviously, will come down from 52% to below 50%. That only the change will happen. As far as the small ticket size and consumer business is concerned, where CSEL, CV and Gold Loans is concerned, they are going to be within 15% max in the near term.
Shreepal Doshi: Got it, sir. Thank you so much, sir, for answering my questions, and good luck.
Arul Selvan: Thank you.
Operator: Thanks. Next, we have Arvind from Sundaram Alternates.
[Analyst] (Sundaram Alternates): I just had two questions. Actually, one question on the cost was already answered. Just one clarification, if I can ask. You mentioned the cost of funds could go up by 10 to 15 basis points for the full year basis. Is it assuming that another 50 basis points in rate hikes can happen or not assuming that?
Arul Selvan: Assuming another 25 basis points.
[Analyst] (Sundaram Alternates): Okay. Another 25 basis points.
Arul Selvan: 25 down, 25 take may happen. Overall, 50. That is the assumption.
[Analyst] (Sundaram Alternates): Okay, sir. Understood. Thank you.
Operator: Thanks. Next, we have Renish. Renish, you can ask a question. Renish from ICICI Securities.
[Analyst] (Kotak Macro): Hello.
Operator: Yeah, go ahead. We can hear you.
[Analyst] (Kotak Macro): Hi. Kumit from Kotak Macro. Sir, just one thing. In LAP business, when we look at the IRR, so last maybe seven, eight quarters, there has been a steady increase in LAP IRR from 12.5% to now almost 13%, 14%. Is there any mix changing within LAP book, like micro LAP share driving this higher IRR? Or what is driving this better IRR in the LAP business?
Arul Selvan: LAP business, we mentioned that we have started small LAP business also. We have now two product. One product is for the urban market and one product is slightly between urban and rural market.
[Analyst] (Kotak Macro): Rural market.
Arul Selvan: Yeah. The product which they are doing at S LAP has started doing almost INR 500 crores disbursement per month, and their yields are higher. That is the reason the overall yields are maintained.
[Analyst] (Kotak Macro): Okay. Sir, what will be the average ticket size in small ticket LAP business?
[Company Representative] (Chola): The ticket size is between INR 15 to 20 lakhs would be the average ticket size.
Arul Selvan: INR 20 lakhs is the average ticket size.
[Analyst] (Kotak Macro): Okay. The yield will be what, upwards of 14%?
Arul Selvan: No. The yield as of now, we have not given segment-wise.
[Analyst] (Kotak Macro): Okay. Got it. Sir, just last thing, maybe slightly repetitive in nature, but just curious to ask. We see all the events or challenges persist today in terms of the draft paper on the insurance commission, maybe likely a moderation due to rising rate cycle, and then obviously you did clarify that your credit exposure. I can understand from a 2027 standpoint, given H1 being very strong, we are already in October where things looks better. But when we enter 2028, right, and if some of these events might unfold, flip side versus what we are thinking right now. Do we have any levers in place to mitigate any adverse impact which can arise from this event in FY28 so that we can sustain the 3.5% PBT growth in FY28?
Arul Selvan: Over the years, last 15 years, if you see that there are many time this kind of ups and down came in our life, not only for Chola, for the entire country and entire industry, and industry sailed through all these challenges. Let us hope for the best. There is no clarity that what is the impact is going to come from the insurance income coming down or drought is going to happen. They are all discussed as of now. As I mentioned that I don't see the drought is going to create big problem in terms of the farmer income. Farmer income is not getting impacted as of now for the kharif point of view. We need to see reservoir level point of view that how much is rabi is getting impacted, and that is going to seen the impact coming through the next year.
Arul Selvan: That is the reason I mentioned December. in December only we will come to know whether Rabi sowing is going to go down or not. If that is not going down, then we will definitely wait for the next year rain. If the next year rain has a deficit, then only next year we will have a problem. Insurance income, as I mentioned that we have already evaluated and seen that is not going to create a big problem for us because we have a plan B ready, and we are waiting for how much income is going to go down. Accordingly, we will make a plan, and then we will only tell.
[Analyst] (Kotak Macro): Got it. Maybe the increased share of this high profitable product might be a lever for us. Is that the right assumption?
Arul Selvan: No. That in any case it was there only. That is not for handling the insurance income or drought. Without that is there. So that was always to keep. We keep trying to diversify, keep getting the product in order to basically continue to grow and sustain the income level in order to basically sail through problem time to time.
[Analyst] (Kotak Macro): Got it. This is very helpful, sir. Thank you. Best of luck.
Arul Selvan: Thank you.
Operator: Thanks. We will just take one last question from the line of Shubhranshu. Shubhranshu is from PhillipCapital.
[Analyst] (PhillipCapital): Thanks, Nischint. So two or three questions. The first part is, Maruti increased its guidance yesterday on its call. So how do we look at the passenger vehicle growth going forward in the next 12 to 18 months? Second is, which are our largest states in terms of total exposure, which includes Vehicle Finance, LAP, and all other business that we do. If we can point out to the top five states. And how many people do we deploy in collections and CSEL? Thanks.
Vellayan Subbiah: Collection is easy to answer.
[Company Representative] (Chola): Collection is easy.
Vellayan Subbiah: Now I have a large number of team in collection. I can say that now it is more than the sales team I have in collection team for-
[Company Representative] (Chola): How many? What is the count actually they ask for?
[Analyst] (PhillipCapital): What is the count?
Operator: I have around 1,800.
[Analyst] (PhillipCapital): In CSEL. Specifically for CSEL I am asking, sir.
Vellayan Subbiah: CSEL part one is 1,800. Part two?
[Analyst] (PhillipCapital): Sorry, agency.
Vellayan Subbiah: So almost put together is around 2,800 people are working in CSEL collection.
[Analyst] (PhillipCapital): On roll. Our payrolls.
Vellayan Subbiah: Yes. Half are on roll and half are agency.
[Analyst] (PhillipCapital): Agency. Right.
Vellayan Subbiah: CSEL unsecured is entirely in the roll, which is like 1,800. Then around 1,000 people are basically in agency.
[Analyst] (PhillipCapital): Understood. The first two questions?
Vellayan Subbiah: You are asking about the overall disbursement by the state?
[Analyst] (PhillipCapital): Passenger vehicles especially. What is our market share in Maruti, and how do we think that it is going to increase with Maruti's own guidance going up?
Vellayan Subbiah: No, one is that we do not want to give you segment by state and by market, but we would like to mention that we are one of the largest player in the Maruti council, and we have been continuously increasing our market share with them, especially in the upcountry market, rural market, where whatever entry car we are selling, we are the partner with them. We are one of the preferred partner with them. As they grow, our number is likely to grow. But we are gaining the market share as well with Maruti.
[Analyst] (PhillipCapital): Right. Which will be our top 5 states in terms of total exposure?
Vellayan Subbiah: That is what, as far as the Maruti, we do not want to disclose that.
[Analyst] (PhillipCapital): No, not Maruti. Total. All business.
Vellayan Subbiah: All that is there in the presentation itself. One second, we will give you.
[Analyst] (PhillipCapital): That is only for Vehicle Finance. You do not give it for the other businesses.
Vellayan Subbiah: Okay. Yeah. Correct. Vehicle Finance we have given. Maybe then we will give you this number as and when we will be ready with all the businesses put together.
[Analyst] (PhillipCapital): Okay, sure. Thank you.
Operator: Thank you, everyone. That ends this call for today. Thank you very much for joining us. Thanks to the management for giving us an opportunity to host the call.
Vellayan Subbiah: Thank you, Nischint.
Viral Shah: Thank you.
Operator: Thank you. Bye.
