In conversation with Arul Selvan, President and CFO of Cholamandalam Investment and Finance Company Limited
Cholamandalam Investment and Finance Company Limited is not only on an expanding spree, both geographically and with the introduction of new product lines, but is also leveraging technology to improve its functioning across the country. Excerpts from an interview with the company’s President and CFO Arul Selvan
What key drivers fuelled the impressive Q3FY25 performance, resulting in a 34 per cent surge in revenue and a 25 per cent year-on-year rise in net profit?
Our plan to diversify in multiple lending opportunities and not restrict ourselves to automobile loans only has started paying off. We had been nurturing business lines such as loan against property (LAP) and home loans (HL) over the past few years. We have observed the performance over a large part of the lifecycle of these loans and experimented with them in South India and have now progressively extended them to other geographies riding on the branch network of nearly 1,570+ branches and 2,300+ touchpoint) prevailing in the VF business across the country.
We have also introduced new products such as SME loans, consumer and small enterprises loans (CSEL) and secured business personal loans (SBPL) over the last two years which we will experiment with and grow progressively in the coming years. Our focus on the middle-of-the-pyramid customer profile has helped us maintain a healthy yield while supporting financial inclusion of these customers. Keeping our cost of funds low, leveraging the credibility of the group, and credit losses in check with undivided attention to collection (exclusive teams for each business focusing on collections) has helped us keep our costs down and profits at the expected levels.
Could you share insights on product-wise disbursements and segment-wise contributions? Additionally, what were the primary catalysts behind the 34 per cent growth in AUM?
In light of ongoing challenges in the financial sector, what strategic measures is the company implementing to strengthen asset quality and maximise shareholder returns?
Some of the actions taken are as given below:
1. Strengthen collection teams with exclusive teams to focus on higher bucket delinquencies.
2. Reduce exposure to financial technology-based lending as increased stress on unsecured.
3. Consumptive loans are expected to remain high.
4. Tighten underwriting norms across businesses with focus on credit exposure of the borrowers at the time of disbursements and post disbursements.
5. Strengthen the continuous monitoring of underlying assets to ensure no dilution in value of the security.
6. Representations to regulators to extend SARAFESI to loans which are less than Rs 20 lakhs which are currently not eligible for NBFCs while being eligible for HFCs and banks.
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What are the company’s top strategic priorities in the current market landscape?
1. Focus on business lines which are profitable with good growth potential.
2. Reduce operating costs by improving productivity.
3. Leverage technology to constantly improve underwriting and reduce costs.
4. Unwavering focus on collection to keep credit costs low.
Do you believe the exemption of tax on annual income up to Rs 12 lakhs will stimulate consumption-driven sectors such as real estate and automobiles? How does the company plan to leverage this opportunity for growth?
While this reduction can stimulate growth on consumption-driven sectors, our focus is more on productive loans and will have minimal impact on account of the same. We will have a corollary benefit with better vehicle usage driven by improved consumption. Also, we are more rural-focused and hence are more corelated to agriculture-based income enhancements.
What is your perspective on the RBI’s recent rate cut and its implications for business operations?
It is a welcome move and will have a positive impact in reducing the cost of funds. It needs to be also seen how banks react to this action by reducing their MCLR which could lead to sustained cost of funds reduction.
Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.