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00:00Hello and welcome, we are in the thick of earnings and we continue to speak numbers.

00:11We have with us the management of Chola Finance. We have Mr. Arun Selvan who is going to talk

00:18to us about the Q1 numbers. Good morning, sir. It's a pleasure as always to speak with

00:23you.

00:24Good morning.

00:25So, sir, just talk to us about growth first off. You guided for around a 25% growth number

00:31for FY25. You far exceeded that in Q1. It's been a very strong Q1 which is seasonally

00:38generally the kind of the weaker quarter for the larger lending industry. Talk to us about

00:46what are the growth trends and how will rural also affect the numbers. Can we expect a higher

00:52number in terms of guidance on AUM growth?

00:58We have got into multiple products, as you know, and in most of the products we are seeing

01:04good growth, especially LAP and home loans, which we have gone geographically wider. Vehicle

01:10Finance has done a good job at this time, but there is still a lot more can be done

01:15here because the rural economy, as you rightly pointed out, is yet to pick up in its full

01:20earnest. The monsoons have been predicted to be good and so we expect that to grow well

01:27and we will see growth in the new businesses also, which is the CECEL, SBPR and SME. These

01:32have been growing, you know, pretty steadily over the last year and this quarter also strong

01:38growth. So we expect growth to be around the same 25-30%. I don't want to comment right

01:44now much larger than that. Right now we will see how Q2 happens. Q2 also is generally a

01:51dull quarter because a large part of the country comes under monsoon and also there are some

01:56inauspicious periods during this quarter, which tends to reduce the economic activities,

02:04at least in Vehicle Finance and related businesses. So we will watch Q2 and then come with a more,

02:10you know, clearer and a more steady growth projection. So right now let's stick with

02:17the 25%. Maybe around 25-30% is what we can right now target.

02:22Understood, sir. Sir, a couple of concerns that at least I found. One is with regard

02:29to margins, you had guided 7.8 will hold when the last time we spoke at the end of Q4. We

02:35are at 7.6 currently. Do you expect that to go back to 7.8 on higher margin products or

02:43you are expecting some bit of tepidness in margins compared to what you were looking

02:48at last quarter? No, we are trying to reach the 7.8%. We will

02:53be there, I presume. As you look at it year on year, the numbers I gave last time also

03:00was more from an year on year perspective and we expect the yields to further improve.

03:05We have talked about that the Vehicle Finance book should change its contour with larger

03:11yield share going up as the old book runs off and the new book comes into place. And

03:19we have also been doing more of used and the higher yield products in Vehicle Finance which

03:23should, you know, push the yields up. The rest of the new products will also start increasing

03:29their share in the NIM. So, that would also help us to move that NIM. So, we should still

03:35stick to the 7.6 to 7.8% target for the NIM. Having said that, the cost of funds drop that

03:46was expected in the second half may not happen as you all know. But we are still trying to

03:53hold it at that level right now to make sure that we have these improvements in NIM.

03:59Understood. So, on the provisioning side of things, you have seen a bottoming out. Is this

04:05now a revert back to normal you would call or has there been a higher provisioning than

04:13what you would have also anticipated because the number is substantially higher?

04:18Yes. See, we had reached the pre-COVID levels in March. The trend, this is the trend which

04:25used to be in the pre-COVID period that we will tend to slip a bit in Q1 where because of the

04:33large pressures in the Q4, there would be some slip backs in the NCL as well as NBN numbers.

04:40While it will be more, it will remain at similar levels in Q2 and start improving in Q3, Q4. This

04:48used to be the trend pre-COVID because in COVID period the levels went up significantly higher

04:55and there were these management overlays etc. coming into play that the trend was not visible

05:01over the last two to three years. But I think we are back to the pre-COVID sort of a situation where

05:07we will see this trend happening. We will see NCL numbers reducing in Q2 but NBN numbers similar to

05:15what we are seeing in Q1 and in Q3, Q4 you will see both of them improving.

05:20Understood. Okay. So, only getting better from here, is that how you would put it?

05:26Yeah, but you have to wait for a quarter or so.

05:29Sure, sure. Yes. Okay.

05:31Improvements will be visible, yes. Yeah.

05:33Sure. Point taken. Sir, with regard to capital adequacy, you are at 18% currently.

05:39You are growing at 25-30%. I appreciate that profitability likely will continue to hold up

05:46which should aid capital adequacy. But 25-30% is still very, very strong just in terms of your

05:52growth. Any plans to raise capital this year? We don't need to raise capital. If you again

05:59observe the capital adequacy in its entirety, you will see the rundown has been more in the tier 2

06:05which we had repaid large parts of the sub-debt and perpetual debts over the year which we have

06:11raised. And we have adequate capital in the tier 1 both from the pure equity as well as on the

06:18convertible debentures which we are holding right now which will be falling due for conversion

06:23shortly. So, with this I think on the tier 1 we are pretty confident of holding our position much

06:30above the regulatory norm and as well as the internal norms we have guided for.

06:36But tier 2 we will be raising. We have raised already in July some parts of tier 2. We will

06:41raise some more as we move through the year. So, that would keep the capital adequacy at an overall

06:47level well ahead of the regulatory norm that is prescribed and we should be able to fuel our

06:55growth with that. And if one were to foresee, when would an equity raise come into play? Would it be

07:02FY26? No, FY26 is when the conversion of the debentures which we are holding will happen.

07:11At that point in time, we will also evaluate. Actually, we have already stated that if the

07:17capital adequacy drops below 17, we would be certainly raising capital and we will do that.

07:24But as I said, there is large headroom on tier 2 which we should be able to tap. That is a good

07:29amount of demand for tier 2. Chola papers are well accepted in the market. So, we will do the

07:35tier 2 raising. And if tier 1 by itself is coming below the threshold of 13%, then we will certainly

07:43raise the capital. Okay. And with regard to ROAs therefore, your aspiration was PBT ROA of roughly

07:543.4% if I recall last we spoke. Would that at all change given the margin, given the provisioning,

08:03given this entire environment? Would that guidance at all change?

08:08No, we are still working towards the 3.4, 3.5% ROA pre-tax for the full year. So, these are

08:17like quarterly operations which you would have seen even in the past.

08:22And we should be there for the full year, 3.4 to 3.5% pre-tax ROA.

08:28Okay. So, I take your point. So, again on the provisioning side, is there a specific pocket

08:33where you have seen pain? Could you talk to us about some trends that you are witnessing

08:38on ground just to help our viewers get context? See, our vehicle finance book has seen a little

08:45bit of a higher provisioning. Primarily, this happens in Q1 and Q2 when the borrowers who are

08:53small road transport operators and don't have deep pockets get impacted either because of

09:00the seasonality, rains or in the first quarter for this year, for example, because of the elections

09:07as well as the heat wave. But they will come back in Q3 and Q4 when economic activities sort of

09:14spurts with festivities coming into play as well as the harvesting coming into play. That's when

09:20they have larger revenue in their hands. They will start utilizing their vehicles more than 80-90%

09:26capacity which will give them adequate liquidity or earnings to pay not only the current EMI but

09:34also any past dues if any. So, that would help them to reduce their outstandings and delinquencies

09:41and also help us to reduce our provisioning and our NP numbers.

09:46Understood. Sir, thank you so much. It's been a pleasure speaking with you,

09:50understanding all of those metrics. Thank you.

09:53Right. So, President CFO at Chola Manalam Investment and Finance, Mr. Arun Silvan. Anyway,

10:00with that, completely out of time on this one. Stay tuned to NDTV Profit. We'll slip into a

10:04short break. More on the other side.

What's The Road Ahead For Chola Investment? | NDTV Profit

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