Margin Should Improve By 10-15 bps By The End Of FY26: Cholamandalam Invst | CNBC TV18

Summary

Mr. Aruna Sbandi, President and CFO of Chola Madlam Investment and Finance, discusses the impact of the RBI's unexpected rate cuts on their business. He outlines the company's cautious optimism, expecting modest growth in net interest margins (NIMs) and vehicle finance. Despite challenges like monsoon and external market factors, Chola Madlam targets 20-25% overall growth for FY25. The company also plans to expand its gold loan segment, aspiring to reach 3% of total AUM in 2-3 years. Overall, the focus is on steady growth across sectors while managing risks prudently.

Takeaways

• 😀 The RBI's recent policy moves, including a 50 basis points repo rate cut and 100 basis points CRR cut, are expected to boost liquidity in the financial system.
• 😀 Chola Madlam Investment and Finance expects to see an improvement in Net Interest Margins (NIMs) by 10-15 basis points in the next 2-3 quarters, potentially reaching around 8% by FY26.
• 😀 Despite the rate cut, the company remains cautious about loan disbursements, as it depends on market demand and prudent underwriting rather than a simple rate reduction.
• 😀 Approximately 60-62% of Chola Madlam's loan book is fixed-rate, while the remaining balance is linked to floating rates, affecting their response to rate cuts.
• 😀 The company expects growth in assets under management (AUM) to continue at a rate of 20-25%, but with a conservative approach towards scaling up, especially in the first quarter post-policy changes.
• 😀 Chola Madlam's vehicle finance business is highly dependent on rural growth and monsoon performance, with projections of 15-18% growth in this segment for FY26.
• 😀 The gold loan segment, which is still in its early stages, is expected to account for around 2-3% of the total AUM in 2-3 years, with aspirations to reach a book size of approximately ₹2,000 crores.
• 😀 The company plans to keep the consumer and small enterprise business under 10% of total AUM, but expects it to bounce back after a temporary slowdown due to strategic exits and the development of their own app.
• 😀 Chola Madlam anticipates credit costs to decrease slightly from 1.45% in FY25 to approximately 1.35% in FY26, influenced by monsoon success and demand across various sectors.
• 😀 The company remains cautiously optimistic about scaling the gold loan business, targeting a steady-state growth of 20-25% annually after the first 2-3 years of establishment.

Q & A

What was the initial expectation for the RBI policy, and how did it differ from the actual decision?

The initial expectation was for a simple 25 basis points rate cut. However, the RBI surprised with a larger rate cut, referred to as a 'bazooka' with a 50 basis points repo rate cut and a 100 basis points CRR cut.

How will the RBI's rate cut impact Chola Mandalam Investment and Finance's growth and margins?

The rate cut could improve Chola Mandalam's net interest margins (NIMs) by 10-15 basis points over the next two to three quarters. However, the impact will depend on how banks pass on the rate cuts and on overall market demand.

How much of Chola Mandalam's loan book is floating versus fixed rate?

Approximately 60-62% of Chola Mandalam's loan book is fixed rate, while the remaining balance is floating rate.

What is the potential growth of the consumer and small enterprise business for Chola Mandalam in the coming years?

The consumer and small enterprise business is expected to stay below 10% of the total assets under management (AUM), with some short-term slowdown due to the exit from fintech partnerships, but it will recover and scale back to normal levels in 2-3 quarters.

What is Chola Mandalam's aspiration for its gold loan business in the next few years?

Chola Mandalam aims to grow its gold loan business to around 2,000 crores over the next 2-3 years, contributing approximately 3% to its overall AUM.

How does the monsoon affect Chola Mandalam's vehicle finance growth?

Vehicle finance growth at Chola Mandalam is heavily reliant on rural growth, which is influenced by the monsoon. While there has been a slight lull in the monsoon so far, its success will be a key driver for vehicle finance growth.

What is Chola Mandalam's growth outlook for its vehicle finance business in FY26?

Chola Mandalam expects vehicle finance growth to be in the range of 15-18% for FY26, with the key factor being the success of the monsoon. Vehicle finance remains a crucial segment, though other segments are also expected to contribute to growth.

What is Chola Mandalam's forecast for credit costs in FY26?

Chola Mandalam anticipates credit costs to be around 10 basis points lower than the previous year, estimating them to be around 1.35% for FY26, with the monsoon's success playing a key role in this reduction.

How does Chola Mandalam assess competition in the gold loan market?

Chola Mandalam acknowledges the intense competition in the gold loan market, especially with incumbents like Muthoot and Manappuram, as well as banks entering the business. However, Chola Mandalam benefits from starting fresh under new RBI guidelines, which could provide a competitive advantage.

What growth rate does Chola Mandalam expect from its gold loan business once it matures?

Chola Mandalam expects a steady state growth rate of 20-25% for its gold loan business after 2-3 years, as it builds its base and scales up, despite the initially high growth rates on a smaller base.