Cholamandalam Investment & Finance Company Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Profit growth held up despite pockets of stress: PBT rose 20% YoY to Rs. 1,561 crores, with NIM expanding 40 bps to 7.9%, while CSEL partnership runoff and an extended monsoon created asset-quality friction.
• CSEL credit losses have peaked, per management: The unsecured business loan book, hurt by multi-lender leverage and a deliberate exit from fintech partnerships, saw Stage-3 additions decelerate QoQ and early defaults fall for two straight quarters.
• The monsoon bruised vehicle finance, recovery expected in Q3: Stage-2 was flat QoQ, but Stage-3 absolute increase improved sequentially; management sees capacity utilization lifting from December as the Kharif crop hits the ground.
• Gold loans launched, disbursement growth target trimmed: The new gold business disbursed Rs. 500 crores in its first quarter, while full-year disbursement growth may land "a bit shy" of the original 10% target, though AUM growth of 20% is not at risk.
• What to watch next quarter: Whether the October momentum sustains through Q3, the pace of CSEL Stage-2 stabilization, and how the extended monsoon’s harvest impact plays out in vehicle-finance delinquencies.

CSEL Stress & the Partnership Exit

• Business loans, not geography, drove the pain: Leverage was the core problem: customers took 2–3 loans simultaneously via DSAs, a risk the supply-side rush masked until it was too late. The issue spans all ticket sizes and markets.
• Partnership runoff magnified the optics: The book being run down carries higher NCL in percentage terms, inflating the overall CSEL NCL figure even as the direct book improves. Early defaults and non-starters have already fallen for two consecutive quarters.
• Underwriting tightened, control reclaimed: Origination, underwriting and collections are being pulled fully in-house after partner processes proved too different. Management now has a "strong preference" for total control.
• Growth turns positive from Q4: The base effect of stopping partnership disbursements lifts from Q4 onward, and the direct loan and personal loan books are already improving. Overall CSEL AUM growth should start kicking up from Q3.

Vellayan Subbiah: "I didn't think we estimated correctly the implications of the massive supply side rush. So, what started happening is that there were a lot of customers that started getting loans from multiple people. And that massive supply side rush is something that should have been a significant warning signal for us, where we tightened underwriting much quicker. And that is perhaps in hindsight, a mistake, because we didn't do that quickly enough, right and we are paying the price for that now."

Vehicle Finance & the Monsoon Overhang

• Monsoon hit commercial vehicles and construction equipment: Extended rains depressed capacity utilization for CV and CE operators, causing some increase in Stage-3. Stage-2, however, was flat QoQ, and the absolute Stage-3 increase improved from Q1 to Q2 versus the Q4-to-Q1 jump.
• Recovery has a sequence: Small and light commercial vehicles recover first, then heavy commercial vehicles. HCV growth is "sometime away" but improvement has started; buses are driving current HCV numbers, and Chola does not participate in HCV buses.
• Ground activity turned in late September: Capacity utilization improved through September-end and continued into October. December through April–June is the seasonal peak, and the Kharif crop arriving from November should further lift retail customers' repayment capacity.
• Tractor book reset: A conscious call to shrink new tractor disbursements followed a supply-side rush that compressed yields and inflated dealer payouts. The vertical has been revamped top to bottom, and new disbursements will restart from here.
• GST cut helps the core customer: Lower vehicle cost, reduced down payment and falling interest rates improve the retail buyer's capacity to utilize the vehicle and pay on time. Those buyers are Chola's core customer.

Ravindra Kundu: "If the consumption goes up, the industrial production goes up. Agriculture growth kicks in, the retail customer buys the vehicle and if the GST cut reduces the cost of vehicle, also the cost of the down payment and also the interest rate has come down, it will improve their capacity to utilize the vehicle and pay it in time. So, therefore, those people will come forward and they are the core customer of Chola and therefore, we are likely to benefit."

Asset Quality & Credit Cost

• NCL improved to 1.7% from 1.8% in Q1, with full-year expectation closer to 1.6%. Further improvement is expected in Q3 and Q4.
• Credit cost at 1.8% now: coming down to 1.6% would be an achievement; Q3 and Q4 will definitely improve over Q2, but the magnitude depends on how Q3 plays out.

NIM, Margins & the Funding Tailwind

• NIM jumped 40 bps QoQ to 7.9%: another 10–15 bps improvement is expected in H2.
• Cost of funds still has room to fall: banks have not fully passed through MCLR cuts, and the CCD conversion (first Rs. 300 crores done in October, Rs. 1,700 crores remaining over the next three quarters) will deliver a small incremental benefit spread across the period.
• OPEX held at 3.1% despite a 10% overall increase from salary increments, incentive payments and investment in new businesses like gold and consumer durables. As gold scales, the operating-expense ratio should fall further.
• PLR raised 15 bps on LAP and passed through to customers.

Segment Growth & Strategic Shifts

• SBPL yields normalizing: the book is three years old, so average yields that looked high initially are now settling to normal levels; marginal yields and the fixed-rate product structure have remained consistent.
• SBPL quality comfort: the business has not done secured personal loans, only business loans, and management is comfortable maintaining parity on net credit cost and pre-tax ROA.
• Mortgage vs non-mortgage trajectory: mortgage businesses may grow at 30%, non-mortgage at 20%, with an effort to beat 20%.

Vellayan Subbiah: "I think we are better off when we are fully in control of our process, right. And I think our learnings was that some of the partner processes were very different. And so I would say that there is a strong preference to keep total control over origination, underwriting and collections, in-house versus working on the partnership side."

Guidance & Commitments

Key Metrics