Cholamandalam Investment & Finance Company Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Asset quality inflection in sight: Vehicle finance Stage 3 stabilized at 4.17% and Stage 2 improved 30 bps, with early default metrics pointing to a meaningful NCL decline from Q4.
• CSEL NCL past the peak: NCL fell from 7% to 6.4% QoQ as the partnership book runs off and traditional sourcing shifts to a diamond-only quality filter; management expects the trajectory to continue and the ratio to fall below 5% next financial year.
• NIM expanded 33 bps YoY on RBI rate-cut transmission, with another 5–10 bps of cost-of-fund reduction still to flow through in Q4.
• One-off ARC sale masked home loan profitability: A ₹65 crore non-SARFAESI pool sale added ~65 bps to HL credit cost; the underlying book would have printed 0.45%.
• What to watch next quarter: Whether the vehicle finance NCL decline materialises as guided, the pace of CSEL disbursement growth once the fintech base effect clears in Q1 FY27, and the trajectory of SBPL credit costs after the guided peak.

Vehicle Finance: The Turn

• Stage 3 stabilised, Stage 2 improving: Stage 3 held at 4.17% in December while Stage 2 fell 30 bps to 3.6%. Early default and nonstarter metrics improved across OEM, geography and product type (new and used), and management expects the improvement to show up in NCL from Q4.
• NCL decline already underway: NCL numbers came down from 2.2% in Q1 to 2% in Q3. The first two quarters were hit by rains and weak capacity utilisation, a seasonal effect that is now reversing as vehicle demand improves post the GST rate cut.
• Disbursement momentum broad-based: Growth spanned CVs, PVs and 2-wheelers in both new and used categories. HCV disbursements grew 56% vs the industry's 20% as Chola leaned in after holding back for 2–3 years when its cost of funds was less competitive.
• Market share gains across OEMs: From October through December, market shares grew across SCV, LCV, ILCV, M&HCV and passenger cars, with most OEM relationships showing double-digit gains. Two-wheeler share grew in Royal Enfield and Honda.
• Used-vehicle demand supported by replacement cycle: As new HCV and LCV sales grow, fleet operators replace existing vehicles, bringing better-quality used stock to market. Prices declined after a brief post-GST-announcement lull, and demand initially spurted in M&HCV at the retail operator level before flowing to ILCV.
• Cyclicity may be resolving: Management sees vehicle finance cycles as 4 years up and 1–1.5 years down. If vehicle demand sustains for the next 3–4 years, the cyclicity problem resolves, though seasonality will persist.

Kundu: "I am expecting that, that number will start significantly going down because the capacity utilization in vehicle has improved significantly. And as you mentioned that Stage 2 is coming down, that means collection efficiency has improved. That is going to start showing up in the NCL also from the quarter 4."

CSEL: The Clean-Up

• NCL peaked and declining: CSEL NCL moved from 6.7% in Q1 to 7% in Q2 to 6.4% in Q3. Absolute NCLs are falling on both sides: the partnership book is running off, and the traditional DSA/DST book is improving as sourcing quality tightens.
• Diamond-only sourcing now in place: The entire DSA/DST portfolio was segregated into four quality tiers (diamond, gold, silver, bronze). Every quarter, lower tiers were removed; now only diamond-quality portfolio is sourced, with materially lower NCL, while disbursement growth has been maintained at the same level.
• Disbursement base effect clears in Q1 FY27: Chola cut roughly ₹500 crores of monthly disbursement this financial year by exiting fintech partnerships from Q1 FY26. Disbursements are now reaching the same level as last year, and from next year the base effect will make growth look very high.
• Steady-state NCL below 5%: Management committed that the 6.4% December NCL will fall further in Q4 and can come down "definitely below 5% in next financial year," though it declined to commit a specific steady-state number.
• ROA target of 3.5% next financial year: CSEL is targeted to deliver 3.5% ROA in FY27 as the diamond book accumulates over the next 2–3 years and NCLs normalise.

Kundu: "6.4% is very high. And it can come down definitely below 5% in next financial year."

Home Loans & SBPL: One-Offs and Peaks

• ARC sale inflated HL credit cost: A ₹65 crore non-SARFAESI pool was sold to an ARC, booking NCL upfront. The sale added roughly 65 bps to the reported 1.1% HL credit cost; without it, the underlying number would have been 0.45%. An extra provision was also created because collections will flow through the ARC, so the full benefit was not taken.
• Affordable HL NCL guided at 0.5%: Management expects to maintain NCL at 0.5% going forward, with infant delinquencies already coming down across the book.
• SBPL credit cost has peaked: Two zones have already started improving in December and January. Management expects Q4 end and Q1 to show stabilisation, after which credit costs will start declining. The book is entirely non-SARFAESI, so resolution through legal channels takes 2–3 years, but resolutions are now starting to come through in some markets.

Subbiah: "It is 65 bps of the 1.1%. So, if it wasn't for this, it would have been 0.45%."

Margins & NIM

• NIM improved 33 bps YoY as RBI rate cuts progressively lowered cost of funds. Another 5–10 bps of reduction is expected in Q4, which should largely flow through to NIM.
• Q4 NIM expected at 8.1%: Historically, Q4 NIMs are higher because better collections lift other income. Full-year NIM is expected to be a shade below 7.9%.
• NIM expected to hold next year: Management sees no reduction coming through beyond current levels and expects NIM to hold "to a large extent unless there is some drastic increase" or macro issues crop up. Beyond cost-of-fund reduction, further NIM expansion must come from business mix.
• Yield maintained despite rate cuts: SME yields are unchanged from March 2025 despite a 100 bps repo cut, achieved by reducing supply chain finance (down ₹600 crores) and introducing higher-yield Micro Term Loans and equipment finance. LAP yields were sustained by expanding small LAP, now ~20% of the ₹8,000 crore portfolio.
• LAP margin up 20 bps YoY primarily on product mix, with continued expansion into Tier 3 and Tier 4 geographies.

Selvan: "I expect it to hold next year to a large extent unless there is some drastic increase. I don't see any reduction coming through beyond current levels. So I hope unless there are some macro issues cropping up, that should not be increased also. So, we should hold at the current level."

New Businesses & Growth Levers

• Gold loan business launched: Disbursed ₹772 crores in Q3 FY26, operating out of 118 dedicated branches in South and Eastern India.
• Consumer durable tie-ups expanding: Nine tie-ups already cover roughly 75% of the mobile market. The platform is now moving beyond mobile into household appliances, with Samsung Finance Plus infrastructure already set up to acquire customers nationwide.
• AUM growth guided at 20–22% for the current year: Management will look at opportunities to improve but gave no guidance beyond that, noting AUM does not react quickly to disbursement changes.
• Home loan AUM growth of 28–30% expected for the next two years, supported by sustained housing demand and healthy traction in mortgage-backed lending.
• SME AUM growth robust at 33% despite a conscious slowdown in supply chain finance. Sequential disbursement growth of 16% was driven by term loans and equipment finance.
• Unsecured segment picking up sequentially: Disbursements grew 32% over Q2 FY26. YoY growth remains negative due to the fintech exit, but this reverses from Q1 FY27 when the base effect clears.

Guidance & Commitments

Key Metrics