Cholamandalam Investment and Finance Company Ltd

NSE:CHOLAFIN

Q2-2026 Earnings Call

[Nischint Chawathe, analyst]

Hi. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss 2Q FY '26 performance and share industry and business updates, we have with us the senior management today. The senior management is represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Managing Director and CEO; and Mr. Arulselvan, Chief Financial Officer.

I would now like to hand over the call to Vellayan for his opening comments, after which we'll take the Q&A.

[Vellayan Subbiah, executive]

Thank you, Nischint, for hosting the call. Good morning, everybody. I'm happy to take you through the performance for the quarter. Just in terms of a big -- a quick backdrop, obviously, there were a lot of changes in the quarter with rationalized GST rates, repo rate reductions, actions taken by the government which are quite proactive. I'd just like to say and actually, they're quite positive overall for credit uptake. I just like to say, while the impact of these changes weren't fully visible in Q2 due to basically transitional issues, in the medium term, we feel it looks quite strong, especially for players like us because both the multiproduct and cross-country presence. So I think that makes me quite bullish.

In terms of performance for the quarter, the loan growth aggregate disbursements stood at INR 24,442 crores, taking our AUM to INR 214,906 crores, which is a 21% growth over the previous year. Vehicle Finance registered an AUM growth of 17%, and LAP AUM grew by 33%. Home loans disbursement continue to be negative in the quarter impacted due to procedural changes in the registration process in a few key markets. The AUM growth continued to be healthy at 28%. And the AUM of SME also grew by 28% with increase on -- increased focus on business loans and equipment financing. CSEL, which is a consumer and small enterprise loan business, registered a degrowth due to stoppage and disbursements through our fintech partnerships.

NIM improved substantially from 7.5% to 7.9% during the quarter. We expect another 10 to 15 bps improvement in NIM levels in the second half of the year. Credit costs, asset quality being broadly stable, though select segments experienced some stress. Unsecured business loans portfolio under CSEL witnessed higher delinquencies in certain markets, coupled with our exit from the partnership business. However, credit losses in CSEL have peaked, and we expect them to -- expect this impact to be moderate going forward.

We've tightened underwriting norms and enhanced borrower monitoring in the segment, which is expected to bring in better results. As highlighted in our Q1 earnings call, NCL performance has shown sequential improvement across other business segments, resulting in credit cost ratio at a company level improving by 10 bps in Q2 FY '26 over Q1 FY '26, and we remain confident of continued progress in H2.

PBT for Q2 FY '26 stood at INR 1,561 crores, which is a growth of 20% year-on-year. PBT ROA for the quarter stood at 3%, which is at similar levels compared to Q1.

As you know, the business typically witnesses a stronger traction in the second half. And we expect that, that will also translate into improved growth and profitability metrics in the second half. The -- obviously, we're a bit concerned about the extended monsoon, and that's -- and its impact on harvest. That, we'll continue to look at in the coming quarter.

The ROE for Q2 was at 18.11, and for H1 was at 18.47. In terms of liquidity and capital adequacy, we hold a strong position with total liquid assets being INR 17,516 crores, including Gsecs and T-Bills. ALM is comfortable with no negative cumulative mismatches across all-time buckets. And our capital adequacy stood at 20% in September '25, with Tier 1 at 14.59. As highlighted earlier, we think that, hopefully, we will be looking at a stronger second half.

But Nischint, I'll stop with that and be happy to -- turn it over to the participants for questions. Thank you.

[Nischint Chawathe, analyst]

[Operator Instructions] The first question comes from Kunal of Citigroup.

[Kunal Shah, analyst]

Yes. So firstly, again, on the growth side, you indicated like second half would be relatively better. But if you look at the disbursement growth now, it's almost like, say, flat for the first half. Last time you had broadly indicated that we will try to grow disbursements by 10% in FY '26. Would that be possible, would we see the improved run rate in the second half which can take disbursements to almost like a 10% growth. And you had clearly indicated that you will try that the AUM doesn't fall below 20-odd percent from the lower level of the guidance, but the run rate this quarter has not been that great. So would we see some risk to both of the disbursements as well as the AUM growth target?

[Vellayan Subbiah, executive]

So Kunal, I'll start with reverse. Definitely, I think that I don't see the 20% being at risk in terms of AUM growth. The -- and so then I do think the second half is going to be quite a bit stronger. So second, then see, there are 2 sets of things that happened with disbursements in Q2 if you take some of the loans and property business basically with some of the festive holidays towards the end of September, a lot of the registration got pushed out. And so we're seeing that, that registration basically will then come into the October quarter. So -- October, November, December quarter. So I definitely see strength from that perspective.

And then the GST cuts, the transmittal of that. So actually, what happened was from August 15 to September 22, the entire market was in wait-and-watch mode, right? But then since then, we've obviously seen a lot of transmittal benefits come in on the GST side, which is also going to help both our vehicle finance and some of our other businesses as well in the October, November, December quarter, yes.

And then I'd say the additional kick out we've got is since we've started the gold business, there, we've got INR 500 crores in disbursement. So that will also start kicking in coming into the October, November, December quarter. So Kunal, that's why I'm fairly bullish on both. Now whether we get to that 10% number, we might be a bit shy of that number. But definitely, we're going to see good disbursement growth in the second half. And definitely, I don't see the AUM growth of 20% being -- 20% plus -- of greater than 20% being at risk.

[Kunal Shah, analyst]

Sure. And secondly, on the credit cost side. So again, new businesses have shown some stress. Otherwise, commercial vehicle, we had seen some kind of a decline out there and maybe LAP has been steady. So when do we see this CSEL credit cost are stabilizing because that's been -- I think it's been a big one in the new businesses. And across the board, the Stage 3 numbers have gone up, I think at all the product segments. So how do we now view the overall credit cost trajectory for the second half? And what would be the guidance on that front, yes?

[Vellayan Subbiah, executive]

So Kunal, I think, there are 2 trends we should look at, right? So definitely, first off, on your question on CSEL, like I said, my belief is kind of it's now peaked. And from now on, hopefully, we will start seeing moderation in that book, right? That's kind of what we're really working towards.

On the CSEL side, if you actually kind of see the net -- sorry, in the company overall, when you start looking at what's happening, the net increase in Stage 3 is actually kind of -- the net increase has gone down in Q2 versus Q1, right? So that's a useful trend. We're also seeing Stage 2 stabilize. So if you take those 2 things combined, right, we really feel like we are going to -- I mean, again, there, we're beginning to see the peak. And from now on, we're basically going to see improvement going forward coming in at least for the next 6 months, definitely.

That's our belief. Now obviously, the one thing with credit performances, it's always a bit environmentally driven. And so that's why kind of there's some of the wait and watch around the monsoon and some of the factors like that. But broadly, if we just look at the data and we look at how we're seeing trends we do see -- and how we're seeing things in the field, we do see that -- we see a certain level of peaking and an improvement coming in on the second half.

[Nischint Chawathe, analyst]

Next question comes from the line of Priyanshu from IIFL.

[Viral Shah, analyst]

Thanks, Nischint. This is Viral from IIFL. Vellayan, two questions. One, I think you partially referred to the sequential, say, drop in kind of net slippages. I just wanted to pick your brains on so when I look at the net slippages both at a Stage 3 level as well as the increase in, I would say, the Stage 2 on a sequential basis, that has been trending lower. So is this a leading indicator of a, say, a substantial improvement in, say, NCLs in the second half? That would be my first question. Do you want me to go one by one? Or should I put all the questions together?

[Vellayan Subbiah, executive]

Sure. Yes, definitely kind of when we look at the Stage 3 numbers, right, kind of like you said, Q1 to Q2, there has been an improvement, right? So overall, it's come down to about 2.5% versus the 2.8%. That's a net slippage kind of when we look at the net slippage numbers. So that's why, like I said, I do see that as a positive trend kind of going forward.

And like I was answering with Kunal -- from Kunal's perspective. So if you look at what we are seeing, just in the individual businesses, right, we definitely see an opportunity because if you look at what's happening with vehicle finance now, we've got net Stage 3 at about 2.24%, right? And so we do see some of these factors continue to kind of -- to moderate kind of going forward. And that's been quite positive in terms of the movement quarter-to-quarter as well. So we basically see an opportunity. We do see kind of that improving in the second half.

[Viral Shah, analyst]

The second question, just more of a, I would say, data question, given a lot of our peers have already disclosed this number. Can you give us a sense of how the growth trends are going on in the month of October? Or it has already happened in October?

[Vellayan Subbiah, executive]

In general, we have not given kind of current quarter data. But like I said, we are definitely seeing that GST impact and the transferral kicking in on the -- on quite a few of our segments. And like I said, kind of what happened in LAP and HL was more of a -- it was more the SRO problem that basically kind of created some -- SRO kind of -- holidays that created a bit more of push there. So on both fronts, we see this being more positive this quarter. Yes. So your question, October is definitely looking better, right.

[Viral Shah, analyst]

Got it. And last question, Vellayan, from my end is when I look at CSEL right, of course, I think when we started this business, the regulations were different, and we had a different thought process. What is the lessons that we have, say, now kind of learned over here and say, what would we look to say, do differently when we say embark on growing this portfolio maybe over the medium term? The reason why I asked this is that on the other hand, we see some of our peers kind of materially scaling up all these partnership businesses and they keep talking about that this is one of the best portfolios out there. So if you could just help us understand the kind of say, probably the different approach? And how do you see this playing out in the future?

[Vellayan Subbiah, executive]

So I think each firm has its own culture, right? I mean I think if we were to take learnings then definitely one is that -- and perhaps kind of some of this normalization need to happen, right? But the partnership business -- so one is that the partnership business basically is an area that perhaps we -- it was a partner selection kind of issue as well, right? But we generally -- I think we are better off when we're 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's a strong preference to keep total control over origination, underwriting and collections in house versus working on the partnership side. That is one thing.

The second thing is that if we look at -- sorry, I think we've got somebody else talking on our line.

Anyway, the second thing is that from the -- how tight we -- like usually, we've always taken the approach of kind of being like collections first, right, and building out our collection strength firstly. This is a business where we thought would not be as collections-led as -- and therefore, didn't build out that collection strength upfront. So that's been a real challenge. And what we've been doing, obviously, since then is building out a collection strength. And I think that's very critical for us as well.

And then the third is that, honestly, 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's perhaps, in hindsight, a mistake because we didn't do that quickly enough, right, and we're paying the price for that now.

And again, I'm not questioning whether partnerships are the right approach or the wrong approach. I'm just saying, for us, I think kind of there were learnings from that, right, kind of that when we spread out, we saw that there weren't enough control. So for others, it could be an approach that works.

[Nischint Chawathe, analyst]

Abhijit Tibrewal from Motilal, you go next.

[Abhijit Tibrewal, analyst]

Yes. So two questions. The first one is on vehicle finance. While we have seen some asset quality deterioration, which was acknowledged as well. I'm just trying to understand which segments in vehicle finance have exhibited higher stress and which segments continue to do well? Also, during the opening remarks, Vellayan sir said -- Nischint, there's someone speaking on the line? Can you request them to mute.

[Nischint Chawathe, analyst]

Yes, there are 2 management lines so my request is the other management line can probably go on mute.

[Vellayan Subbiah, executive]

One second, we're trying to figure out kind of where this line is.

[Abhijit Tibrewal, analyst]

Sure, sure. So sir, I was just trying to understand in vehicle financing, which segments have exhibited higher stress and which segments in vehicle finance -- which products actually continue to do well?

Also, I mean, in your opening remarks, Vellayan sir said that extended monsoons is something we would kind of closely monitor. All of October, we continue to see rains. So what impact it would have on the third quarter?

And sir, second question I had was on unsecured business loans. Again, Vellayan sir said that we have seen higher delinquencies in certain markets. So just trying to understand which ticket sizes are these? Which markets are these? If you can give some nuance around maybe the customer cohort or geography for that matter.

And lastly, in terms of property, which is essentially home loans and LAP, I heard that there were against certain markets where registrations were a problem. Is this something geography specific or which -- Vellayan sir later said that this was more holidays and which is why registrations could not happen.

[Ravindra Kundu, executive]

So just to start with vehicle finance, just to clarify that or give you some data point that even after having monsoon impact on the overall portfolio of vehicle finance, from Q1 to Q2, the Stage 2 has been flat. It has not gone up. In terms of Stage 3, if you see that, the absolute value increase in quarter 1 over quarter 4 and quarter 2 to quarter 1, you see that there has been improvement. And obviously, because of the monsoon effect, the capacity utilization gets impacted for commercial vehicle and construction equipment. And that has been the reason for a little bit increase in terms of whatever has been increased. And that is what we are expecting to improve over quarter 3, quarter 4 because now capacity utilization from here, it will start improving, and that will improve the overall portfolio of vehicle finance behavior.

So it's across commercial vehicle and construction equipment, wherever -- it actually depends on -- get impacted with them because of the rain got impacted a little bit. And in spite of that, we have been successful in keeping a Stage 2 at the same level.

Now coming to the registration, yes, HL affordable housing registrations got impacted for the last 2, 3 quarters due to the changes in the norm, especially in the southern zone. And also because of the festival holidays across the country, SROs were not performing. So therefore, a lot of disbursement has moved to October. And in fact, that disbursement spillover has been for even vehicle finance due to the GST implementation that happened during the last 10 days. So in a nutshell, October has been a fantastic month to start with the quarter 3, and we are expecting that, that should continue in terms of the growth point of view.

[Abhijit Tibrewal, analyst]

Got it. And so on the unsecured business loans.

[Ravindra Kundu, executive]

Yes. The unsecured business loans, as Vellayan, said exactly that. There are 2 things.

[Vellayan Subbiah, executive]

No. I think the question is what are the specific geographies.

[Ravindra Kundu, executive]

Yes, that's what I am going to talking about.

[Vellayan Subbiah, executive]

Okay.

[Ravindra Kundu, executive]

So the -- in the case of unsecured loan, which is CSEL, we have 3 businesses. One is the personal loan, the business loan and the professional loan. So business loan across the country, the behavior is same. And in fact, we have done some analysis with the CIBIL Data, Bureau's data, it is actually appearing across the state, across the ticket size. The main problem is the business loan alone, which is irrespective of the geography, irrespective of the ticket size, it is more of the leverage issue where the customer wanted to take 2, 3 loans and the PSBs have actually done it with multiple finance company simultaneously. So therefore, those customers have paid. And therefore, there is an issue which entire industry has taken note of it and then taken the decision that the number of inquiries, number of existing loan. Based on that, the credit terms have been now treated therefore, we are now quite comfortable that, that is going to improve our CSEL business.

Within the CSEL business, the fag end of the rundown, which is happening now with respect to partnership which has got higher NCLs in terms of percentage, which is showing up into entire NCL of the CSEL. That is also a reason for overall in terms of percentage increases, CSEL NCL quarter-on-quarter or last year to this year. And as the -- both the things get corrected. Business loan quality improvement has already started. We have seen that early default nonstarter has come down during last 2 quarters, and also CSEL partnership book is running down. In the quarter 3, quarter 4, we will be seeing the improvement in terms of overall NCL coming down of CSEL book.

[Abhijit Tibrewal, analyst]

Got it. And sir, just one follow-up question. Have we made any PLR changes in the home loans and LAP book in the second quarter?

[Vellayan Subbiah, executive]

So for the LAP book, we have done a PLR change of 15 basis points in which we have passed on to the customers specifically.

[Ravindra Kundu, executive]

Both the LAP and HL, we have done that.

[Abhijit Tibrewal, analyst]

15 basis points. All right.

[Nischint Chawathe, analyst]

Raghav Garg from AMBIT, you go next.

[Raghav Garg, analyst]

I just have a few questions. One, I think you've partly answered in your previous question that I think the October month has been pretty good. I just wanted to get some more definite color whether the vehicle utilization has improved in the month of October or so far in November? What are some of the trends that you're seeing on the ground? That's my first question.

[Ravindra Kundu, executive]

Yes. Vehicle utilization has been improving for the last 30, 40 days from the festival season, it started improving. But the best result will come only from December because still it is raining in some parts of the country, especially in South, this is Tamil Nadu, which is -- rains come in the winter season. So therefore, the capacity utilization improves some markets and deteriorates in some markets in the month of November. But December is a month from there up to say April and May, June, the capacity utilization picks up. So we are expecting that the further improvement will happen.

[Raghav Garg, analyst]

At one point, I think you had also indicated a couple of quarters ago that M&HCV is one segment, which is more impacted because of the -- it's highly -- it's more vulnerable to the cycles, the industrial cycles. Any color you could give between the heavier vehicles and -- versus what you're seeing in the SCVs and the LCV segment, that will be helpful.

[Ravindra Kundu, executive]

Yes. If you go through the call and also I said that the heavy commercial will get impacted now, today, you see the number. The heavy commercial vehicle growth has been flat. It has come up from minus [indiscernible] and small commercial vehicle has picked up. It has now gone up to 2% to 4%. And in light commercial vehicle also gone up. So the improvement will start now. It has already started. So the improvement will come with the lag effect, first lights will improve, maybe commercial will improve, and it also depends on the macros because the industrial production improves, that will improve the commercial vehicle sale. GST cut has come, which is actually creating definitely sentimental -- positive sentiment in the market, but we have to see that also.

Post agricultural harvesting period after the Kharif price comes in the market, and that will also improve the capacity utilization. And because of that, purchases will start. Mining also will support the heavy commercial vehicle to further start the purchases in terms of HCVs and also quality of the HCV portfolio will start improving from there.

[Raghav Garg, analyst]

Understood. Sir, another related question is, I think last quarter, you had highlighted that in your conversations with vehicle OEMs, they were saying that volumes were below expectations. This was obviously before the GST cut happened. But after the GST cut, when you conversed with the vehicle OEMs, what are they indicating? Is there a pickup? Or do you expect a substantial pickup in 2H in volumes?

[Ravindra Kundu, executive]

No, it has not been so far good. So the pickup, they are expecting in the second half because the commercial vehicle, as I mentioned, is actually grew up by 4%, wherein the changes in the passenger vehicle and two-wheeler were a little better. And that is why I'm saying that from the quarter 2 to quarter 3, the improvement will start coming from light and small commercial vehicle. And then after that, heavy commercial vehicles. As of now, for the commercial vehicle industry, they -- every -- all manufacturers together, they are expecting higher single-digit growth in this year. So as of now, we are at 4% at the industry level. That might go up to, say, 7%, 8% by the end of this year.

[Raghav Garg, analyst]

Understood. My last question is on cost of funds. So see, I think a couple of large AAA-rated NBFCs have indicated that the cost of funds benefit they were to get from the 100 basis points repo cut, that's more or less already come. What are your thoughts on this? And how much more cost of funds reduction do you expect? And I think that there is some warrant conversion, which is pending for you. So when you say 10, 15 bps NIM improvement in the second half, does that include the benefit of that warrant conversion? If yes, up to what extent? That's all from my side.

[D. Selvan, executive]

Yes, there will be some more small improvements coming through because we are to get the full MCLR pass-through happening from the bank. This is what we spoke last quarter also. And where a large part of it has come, there will be a little bit more that should come in.

The CCD conversion will have a little bit positive impact. It is a INR 2,000 crore number on which cost of funds will come down and it will move to equity. But that will be spread over the next 3 quarters. So the first conversion has happened around INR 300 crores in October. Balance INR 1,700 crores will get converted over the next 3 quarters. Progressively, as it converts, we will get that small benefit coming.

[Nischint Chawathe, analyst]

The next question from Bunty Chawla from IDBI.

[Bunty Chawla, analyst]

Yes. One data keeping question. Can you share the write-off number for this quarter as well as Q1 FY '26? This was on data. And secondly, as you rightly said, now we are seeing the improvement on the ground and the credit cost, which has slightly improved in Q2 should improve in the next first half. So can you share just in first -- in FY '25, it was around 1.5%, which has came up to 1.8% and 1.7%. Can we say the second being the improvement in second half, it should equalize to FY '25 number? And how one should see the FY '27 similar growth in credit cost guidance?

[D. Selvan, executive]

Yes. The write-off numbers in Q1 was INR 514 crores and in Q2 is INR 639 crores.

[Vellayan Subbiah, executive]

And sorry, I think the other question is around...

[Ravindra Kundu, executive]

If you're asking that the improvement in NCL.

[D. Selvan, executive]

So that is because on the provision ECL is slightly lesser on the incremental volume being lower. So that is the reason why it has reduced.

[Ravindra Kundu, executive]

And NCL which has actually grown from 1.8% to 1.7% is likely to further improve in quarter 3 and quarter 4. And obviously, we will reduce it from overall like at YTD level, we are at 1.7, 1.8, from there, I think it should come down to -- for the full year, it should be, I think we're expecting closer to 1.6%. Let's see that how it pans out in quarter 3, quarter 4.

[Bunty Chawla, analyst]

Okay. And on FY '27, if you can share some thought process.

[Vellayan Subbiah, executive]

I don't think -- you're asking for guidance for FY '27. I think it's too early to give right now.

[Bunty Chawla, analyst]

Okay. Okay. No, sir, just a color, nothing as a number, but as a color, per se.

[Ravindra Kundu, executive]

The standard, this thing, we are likely to keep our growth level between 20% to 25%. Sometimes it actually comes down to closer to 20%, sometimes goes up. So if we continue to see the growth like what we have seen in October, obviously, the growth will be higher than where we are.

[Nischint Chawathe, analyst]

Next question from Piran Engineer of CLSA.

[Piran Engineer, analyst]

Team, congrats on the quarter. Firstly, I just want to understand this conceptually. We've had some -- a few quarters of CV stress. And obviously, then your contractors and all are not buying new trucks. Is it fair to say that, first, we should see CV stress normalize and then we start seeing a pickup in growth? Or is there any reason why growth should precede asset quality improvement?

[Vellayan Subbiah, executive]

No. In general, what we've seen is that you do see growth kicking in, even though stress doesn't fully correct. In general, Piran, that's always been the way it's been. So just because, I mean, you have a combination, right? New buyers coming in, people wanted to kind of change their fleets. So it's not that one has to correct fully before the other happens.

[Piran Engineer, analyst]

Okay. And is it like two different cohorts, like, for example, the large fleet operators will be the ones buying while the small fleet operators are the ones still under stress?

[Ravindra Kundu, executive]

No. Depend upon situation. For example, now, GST cut benefit will be more towards the retail customer because they don't take GST input and they would like to take it because the EMI burden will go down, cost of fund has come down, so the rate of interest will be charged to them will be lower wherein for the large fleet operators, it depends upon how many contracts they get it, and it depends on the infrastructural development and the mining and construction, how that is happening in the market.

So if the consumption goes up, the industrial production goes up, agricultural growth kicks in, the retail customer buys the vehicle. And the GST cut, it reduces the cost of the vehicle, also 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 be benefited. And as I mentioned, that happens first in small commercial vehicles and then light commercial vehicles, then heavy commercial vehicles.

[Piran Engineer, analyst]

Understood. Okay. So for HCV, it's probably some time away? Maybe a quarter or so.

[Ravindra Kundu, executive]

Growth is some time away, but improvement has started.

[Piran Engineer, analyst]

Understood. Understood. Okay. That's clear. Just secondly, our tractor book has been declining now for 3 or 4 quarters, and that's actually been the segment for the auto industry, which has seen the best volume growth. So what exactly are we missing here? Is it that competition has heated up? Are we taking some conscious stance of pulling back?

[Vellayan Subbiah, executive]

Taken some corrective actions.

[Ravindra Kundu, executive]

No, we are -- we have taken a conscious call. In the past also, we said that there are two problems in tractor we have seen. Because of being a PSL asset, there is a supply-side rush, we have seen in the CSEL business. Here, also, all financiers have started doing it, and the rate has come down, in the sense the yield of the business has come down. And if that yield continues, then therefore, the ROE, which we normally deliver in tractor gets impacted. Therefore, we said that -- and the payouts dealer also gone up. So that's the reason we started driving the used tractor more. And then we also completely revamped the tractor vertical. And then from top to bottom, we have now people. So from here onwards, we will start driving the tractor new disbursement also. And 2 years, there were monsoon deficit and therefore, there were a problem. So this year onwards, tractor started growing. So now it is the right time to basically increase the tractor disbursement.

[D. Selvan, executive]

And in some markets, you have this government run schemes, which is not supporting the NBFCs. There is Annasaheb Patil scheme in Maharashtra, some schemes in Gujarat and other things. It is only for the public sector banks or banking institutions. So it is difficult for NBFCs to participate. And whatever the leftover are coming in, we have taken a call to keep away from that because of the portfolio-related issues. So tractor, yes, you can see some improvements in the coming months, we have corrected it, and we are on the way back in that particular segment.

[Piran Engineer, analyst]

Okay. That's clear. And just lastly, I know it's early days, but indicatively, how are gold loan yields looking like? Are we pricing ourselves below say Muthoot, Manappuram or similar sort of yields?

[Ranjit Ramachandran, executive]

If you look at our yield, definitely, we are not looking at pricing lower than the industry peers. Okay. We are on par as far as the pricing is concerned, and we do not want to dilute our yields on that. We have a very, very healthy marginal yield, which is yield at origination, which I think is slightly better than the incumbent players in this segment. So I think the focus is on providing easy access, great experience in terms of availing a gold loan with ease and also offering a lot of digital processes so that the loans are disbursed quite quickly as the customers start seeing a better experience at our gold loan branches. So in terms of our pricing strategy, we do not want to get into any kind of a pricing war with competitors because we just started our operations in gold. We are doing well. Customers -- we are slowly building a customer franchise, and slowly and steadily building. And our marginal yields, which is yield at origination, is quite healthy.

[Nischint Chawathe, analyst]

Next Shubhranshu Mishra from Phillip.

[Shubhranshu Mishra, analyst]

So 3 or 4 questions. The first part is on heavy commercial vehicle. If we can split it in more 3 parts, buses, haulage and tippers, where exactly are we seeing growth? And how do we look at it going forward in the next 3 to 4 quarters?

Small commercial vehicle and light commercial vehicle, we had alluded to slightly heightened asset quality and delinquency in the earlier quarters. How are you looking at the asset quality in that specific segment?

In terms of passenger vehicles, the largest OEM, Maruti, they have spoken about higher guidance in FY '27. They're also seeing higher realizations. So how are we geared up, especially in terms of market share growth in Maruti and possibly in Hyundai as well.

And the fourth, if you can speak about the net balance transfer out in LAP as well as home loans.

[Ravindra Kundu, executive]

Okay. Shubhranshu, so the M&SV has improved 1.9% at the overall level, but the buses have been higher in the M&SV segment. Light commercial vehicle, 5.1% during the April to September period. So both the product line, M&SV and likes have gone up. But as you asked that which segment of M&SV, it is the buses who actually are driving the HCV number. And in contrast, we don't do HCV buses. So we are able to do HCV haulage number, but there are markets where we are seeing that the participation by our competitors are slightly lower. And therefore, we have gained our market share in heavy commercial vehicle.

And in the case of light commercial vehicle, small commercial vehicle, we have done well. And as I mentioned, this is what's going to be the trend also, first small and light will happen, and then HCV will start growing over the period. What was the second question, Shubhranshu, can you repeat?

[Vellayan Subbiah, executive]

Maruti.

[Shubhranshu Mishra, analyst]

Maruti has increased its guidance for FY '27. They have also given much better realizations.

[D. Selvan, executive]

So as far as Maruti is concerned, we are now in the top 4 of the financial metrics. We have done our highest-ever numbers last month. The last 4 months, we have been continuously doing. We have the best -- now as far as Maruti is concerned, we are quite aggressive. We have done well in that segment. [indiscernible] is also behaving well. And slowly coming to Hyundai, we are slowly -- but the initial focus was to grow our market share and numbers and which are reasonably good and at par with the best in the industry. So Maruti, we are focused. We are month-on-month.

[Nischint Chawathe, analyst]

On BT, you want to answer?

[Vellayan Subbiah, executive]

Yes. So for LAP, the -- out of the total closures, 45% is BT out restoral from the old funds and sale up assets and so on and so forth. So it's about -- this trend remains the same almost in all the quarters.

[Ravindra Kundu, executive]

But BT in is more than the BT out.

[Vellayan Subbiah, executive]

Yes, our BT is good. We've always been maintaining a good BT in.

[Shubhranshu Mishra, analyst]

And sir, if I can have just one clarification on Maruti and Hyundai. What we are seeing in passenger vehicles is that PSU banks are super aggressive, both in terms of tenor as well as rates. What is our strategy in terms of countering PSU banks to gain more market share in both Maruti and Hyundai which are 2 large PV volumes.

[Ravindra Kundu, executive]

No, we are not countering the PSV because they are focusing on salaried and we are focusing on self-employed, nonprofessional. We are into Tier 3, Tier 4, Tier 5 market and they are into 1, 2, 3. So the segment and the customer segment of the market are both different between us and them. So there are NBFCs who are doing their job, the banks doing jobs.

So we are also not offering that kind of tenor or that kind of pricing. So our pricing and our tenor are up to our customers, and we have been financing them. And we are seeing that segment is growing. And we are also seeing that the manufacturers are also interested to equally increase salaried class as well as self-employed nonprofessional category buying the vehicle. Especially in the smaller segment, the entry-level car and mid-segment car, they are more working with the NBFC and the salaried class people are buying both the category, premium segment as well as midsized car.

[Shubhranshu Mishra, analyst]

Understood. This was very helpful. Best of luck for ensuing quarters.

[Nischint Chawathe, analyst]

Next question comes from Kaushik Agarwal of Haitong Securities.

[Kaushik Agarwal, analyst]

Sir, I hope I'm audible. I have a couple of questions. So firstly, can you please explain what explained the steady pressure on the aims in the SBP segment? So should I ask other questions or you'll go one by one?

[Ranjit Ramachandran, executive]

One by one is better.

[Vellayan Subbiah, executive]

What type of pressure you are seeing?

[Ravindra Kundu, executive]

No, no, no. He's saying that why steady yield.

[Vellayan Subbiah, executive]

Steady yield, I thought pressure. Can you please repeat your question.

[Kaushik Agarwal, analyst]

So I'm referring to Slide #58 where you have given the profit and loss statement of SBPL, so the asset ratio shows that the income number has come down to 25.5 in 2Q. This was 25.9 in 1Q. So just wanted to understand the yields movement over there.

[D. Selvan, executive]

On the average asset movement as the -- as this business was started 3 years back. So as the average assets are improving, the yield is slightly -- initially, it was looking higher, now it is coming to the -- but our normal remained same for the last 3 years. Marginal yield is same only.

[Kaushik Agarwal, analyst]

There is no PLR cut as such we have taken in this particular product segment.

[D. Selvan, executive]

No, no. These are fixed rate.

[Kaushik Agarwal, analyst]

Okay. Okay. And sir, my second question is on the OpEx front. How do you see the same panning out in the medium term? There is some jump in the second quarter as well. So is it more of a seasonal impact?

[Ravindra Kundu, executive]

For SBPL or?

[D. Selvan, executive]

SBPL?

[Kaushik Agarwal, analyst]

Sir, this, I'm asking for the overall business.

[Ravindra Kundu, executive]

Overall business has just gone up by 10 basis points. We mentioned that in the previous quarter that during this period, we do all salary increment and incentive payment, which because of that has gone option. And you have to also consider that we've been continuously investing in the new businesses like gold and consumer durable. And in spite of that, we've been successful in keeping it at 3.1%. And as Ranjit has mentioned that he's also doing a good job in terms of gold as it goes their operating expenses will further come down. So that will improve our overall cost of operating expenses in time to come.

[Kaushik Agarwal, analyst]

Understood. Understood. And sir, my last question is relating to CSEL business. Since you have pulled back from the partnership channel, can you throw some light upon how do you plan to scale the same? And is there any target which you have set in terms of how will this number be in terms of overall AUM mix in the medium term?

[Ravindra Kundu, executive]

Yes. So as of now, it is 7%, 8%. So it will remain at that level only. But in that, all other businesses are going to grow. So therefore, the percentage mix in terms of the CSEL to Chola will remain aggregate. However, overall disbursement growth -- AUM growth will start picking up from quarter 3 because we are also parallelly investing on the consumer durable and D2C, which is a direct-to-customer digital lending by Chola, which is coming under CSEL as of now. And CSEL business also now they have started improving in terms of their directly witnessed, their personal business has improved and they assume PBT their disbursement over. So -- and then quarter 4 onwards, you will see that the base effect of stopping the partnership business will go up and therefore, you will start seeing the number also, actual number, positive number.

[Nischint Chawathe, analyst]

Yes. So there is one question which has come up, and it says that while you expect the second half to be better than first half and you've already seen some improvement in October, given the fact that we have higher exposure in Tamil Nadu and Karnataka, which have their own set of providence, is there in the vehicle side risk to utilization levels in Tamil Nadu and on the HL LAP in Karnataka because obviously, khata issues, and all.

[Ravindra Kundu, executive]

See, as far as Tamil Nadu is concerned, in fact, the portfolio has improved, and it has continued. Even September, October has been good. So Tamil Nadu, we are back on track. In fact, we are fully ready to gear up any market improvement, we will be the first to hit the block. So Tamil Nadu, we are not seeing any concern.

Karnataka, because of this rains and mining segments, some delays here and there, we are seeing, but things are improving.

As far as South India is concerned, vehicle finance book and the disbursement, everything is improving. So we don't see any concern. Even if this is part of the regular -- as far as Tamil Nadu rains are concerned, this is a part of the regular listing. And we are -- absolutely, we are not expecting any surprises there.

[D. Selvan, executive]

In fact, HL and LAP is likely to grow in...

[Ranjit Ramachandran, executive]

e-khata is only a procedural issue, which is causing delay. However, it doesn't have any [indiscernible].

[Vellayan Subbiah, executive]

Yes. It doesn't have any portfolio issue or a risk. It is not [indiscernible]. And it's only the transaction pillar, which is happening and which is delaying the whole plan.

[D. Selvan, executive]

For HL, Tamil Nadu remains the best numbers for HL business. And we keep on doing these numbers in Tamil Nadu. Karnataka, there were issues on the e-khata conversions. Slightly, the registration process was getting delayed on that front. As far as delinquencies and controls are per se, Karnataka, the reduction has started kicking in. And we see now all the South Indian states from here will do better. And accordingly, the disbursement and the book will all show that signs.

[Nischint Chawathe, analyst]

Sure. And just one more is -- I think there's some clarification for credit cost. You have guided for around 1.6, that's around 20 basis points Y-o-Y rise, right? I think that's my clarification is all about.

[D. Selvan, executive]

We are at actually 1.8 I think as of now. So from there, if we come down to 1.6, so obviously that will be the achievement for us. And obviously, we will try to do more, but let's see that. That's what I'm saying all depends on how the quarter 3 improved. The quarter 3 and quarter 4 will be definitely improvement will come over quarter 2. And how much improvement will come, that is what is something we need to wait and watch. And one important thing Mr. Vellayan also mentioned in the beginning itself, a little bit that there is a monsoon which is getting extended is a cause of concern. But therefore -- but that is what we have already factored and started working on it.

[Nischint Chawathe, analyst]

Got it. Next question from Nidhesh Jain of Investec.

[Nidhesh Jain, analyst]

I have 2 questions. Firstly, how do you see the GST-led deflation impact on our disbursement in the vehicle finance segment? Do you think that 10% reduction that -- in value of vehicle which has happened, you will be able to negate through volume? Secondly, what is the long-term strategy on SBPL? We have seen some stress in that book. Do you plan to scale that book from the current levels?

[Ravindra Kundu, executive]

The first month in the month of October, the ticket size has come down by almost 8%, but our volumes have gone up by 14%. In spite -- the disbursements have gone up by 14% and units have gone up by 18% in first month. So we will see that -- I think that's it. For the time being, we are not much worried about it.

[Vellayan Subbiah, executive]

As far as SBPL is concerned, we plan to continue the growth. The only thing is that the growth will happen on those areas where we are already becoming stronger. So the strong will become more stronger. And whether we are having some issues like what you are seeing in that, there, we will just maintain the status quo.

[Nischint Chawathe, analyst]

Next question comes from Shweta Daptardar.

[Shweta Daptardar, analyst]

I have 2 questions. First, there is a quantum jump in disbursements on the LAP plan first half of this year vis-a-vis the corresponding period. So is this attributable to home loan competitive intensities flaring up and also that larger part of branch expansion has stabilized for us? And if you could just throw color upon the whole LAP product dynamics right from origination, ticket size, yields and any change in strategy on the LAP front.

[Vellayan Subbiah, executive]

I'm just trying to understand, basically, we're talking about disbursement growth has been 14% H1 and H1, right? So is that what you're saying as a quantum?

[Shweta Daptardar, analyst]

Yes, yes, yes.

[Vellayan Subbiah, executive]

So that's -- I mean, that's actually lower than the increase in disbursement growth last year, Shweta.

[Shweta Daptardar, analyst]

So if we observe in past 3 quarters, the disbursements and AUM growth has been stronger on LAP, higher than home loan segment. So if you could just lay out.

[Vellayan Subbiah, executive]

You're comparing it to home loan. So you're comparing it to home loans. So I think it's better to look at them individually at a segmental level because both businesses are at a different stage of growth, okay? So just look at it from -- look at LAP. Don't compare it to the home loan business. And loan against property business had a higher growth rate last year. That growth rate has moderated a bit on the disbursement front because you've got a higher balance sheet this year, a higher starting kind of level from last year. But obviously, the intent there is that we feel like these are achievable disbursement levels, and we'll continue.

[D. Selvan, executive]

Yes. And these are prime -- HL is an affordable segment where the average ticket size is INR 13 lakhs, and here, the average ticket is about INR 65 lakhs to INR 70 lakhs. So they are completely not a comparable businesses.

[Vellayan Subbiah, executive]

Yes. So you shouldn't compare these 2 businesses.

[Shweta Daptardar, analyst]

Okay. So no change in origination strategy or tickets sizes on the LAP front?

[Vellayan Subbiah, executive]

No, no. Like we said, we have had a drop from last year's growth. So if you're asking if we're going more aggressive.

[Shweta Daptardar, analyst]

Yes, exactly. That's the point.

[Vellayan Subbiah, executive]

Then the data does not reflect that. But Shweta, the data does not reflect that.

[Shweta Daptardar, analyst]

Okay. Okay. So my second question is, we have dealt in greater detail on volume pickup on the CV side and also capacity utilization's gradual uptick. But how is the operator economics shaping up for SRTO segment, considering that even freight rates at pan-India aggregate basis have seen some intra.

[D. Selvan, executive]

Yes. As we mentioned that September end onwards, the activity on ground has improved, and capacity utilization also improved. And even in October, that has continued. Now after November, we will get a Kharif crop on ground, and therefore, that will further increase the capacity utilization of the retail customer. And therefore, the capacity to repay whatever delinquencies are there in Stage 2 or Stage 3 will improve, and therefore, we are expecting better results in quarter 3 and quarter 4. But things are improving on ground.

[Nischint Chawathe, analyst]

Next comes in Avinash Singh from Emkay.

[Avinash Singh, analyst]

Yes. So the question is on the home loan business. Two things. One, of course, I mean, with the base effect coming into picture and also seasoning happening. It's clear that, I mean, there will be kind of some increase in the GS3. But over the last 4, 6 quarters, probably the pace of this accelerated GS3 is a bit on the heightened side. So can you provide some color, I mean, if it is specific to particular geography or particular customer segment that is kind of affecting this piece. And also gradually, the coverage has been coming down on this. So is it kind of some of your CSEL model led change where, I mean, you have a different time period, a different kind of past experience data that is affecting it. So what explains this sort of reduction in the PCR. That's it.

[Ravindra Kundu, executive]

So we mentioned that in the past also in the case of affordable housing, we have 50% SARFAESI, 50% doesn't cover SARFAESI. So these are non-SARFAESI asset we need some time to see our efforts are actually getting result or not. And therefore, we don't do immediately asset sale and wait for some time. I mean you have seen that in the case of past also in the LAP, we have benefited by not acting so hard on the NPA cases. And then after that, post-COVID, when SARFAESI come down to 20 lakh across all -- entire portfolio, LAP over to NPA reduction has been surpassed. So for some time, it goes up. And then after that, once we see that there is a sale need to be done with the ARC who are actually having a SARFAESI for all these cases, then our NPA comes down. So that is what is the strategy in general in affordable housing being managed by the NBFC because we have a different norm as compared to the HFCs and banks. So that is one.

Second is that it is not impacting, as of now, anything in terms of the ECL for that matter, if you're asking that. And the early bucket increase in the NPA, if suppose cases move from Stage 2 to Stage 3, and it is getting into the Stage 3, automatically, the provision coverage for the overall Stage 3 goes down because it is a new asset. Our overall Stage 3 is most of it is new, therefore the provision coverage comes down.

[D. Selvan, executive]

And as far as growth is concerned, we are with AUM growth of 30%. And our geographies, we have spread. We are seeing slight degrowth in Southern states, as I said, for Q1 and Q2. But from here on, the leads are good, and we'll see the disbursement going up for the Q3, and we'll maintain the steady rate of 30% AUM growth as committed earlier.

[Avinash Singh, analyst]

And this -- if you can just help us GS3 growth over last [indiscernible] in absolute terms, are these issues some kind of specific to certain geographies or it's like are your...

[D. Selvan, executive]

It is not. It is not. And the indicators are not indicating. It is because, as I said, SARFAESI, non-SARFAESI, we take time for a non-SARFAESI pool, and then gradually, it will take a moderate shape.

[Ravindra Kundu, executive]

It is related to non-SARFAESI, SARFAESI, not related to the geographies.

[Nischint Chawathe, analyst]

And the last question comes from the line of Aravind Ravichandran.

[Aravind R, analyst]

In respect to the SBPL business, are we seeing any issues there, like, which could affect short-term growth prospects in that business? That is my first question.

[Ravindra Kundu, executive]

SBPL is looking very solid in terms of growth. They are growing higher than 30%, [indiscernible] 27%. Though this is early, therefore, the growths are so high, but we will definitely grow this business more than 30% over the longer term also.

[Aravind R, analyst]

Sure. No, my question was particularly related to like this particular segment has seen some asset quality issues with the other players. Are we seeing any like short-term issues because of that like affecting -- that's affecting the growth in the shorter term?

[Ravindra Kundu, executive]

SBPL, when we started, we thought it is a secured business and personal loan, but we have not done the secured personal loan so far. So that is the advantage for us. And therefore, we are quite comfortable that we continue to do business loan and maintain the quality in terms of both net credit cost and pretax ROA, what we are delivering.

[Vellayan Subbiah, executive]

So as far as shorter term, you are asking, it will not affect. Whatever we are maintaining for the first half, that will be maintained for the second half also, the growth rates.

[Aravind R, analyst]

Got it. And just one last question. Like when you mentioned about CSEL business, you said the mix should be somewhere like closer to this only. Then are we saying that it would not be a big growth driver in the medium term. Like we have seen like it happened actually being a big growth driver for our business, which is growing above the overall growth, credit growth. Are we seeing like, in medium term, CSEL will not grow beyond the, let's say, overall business growth, whatever we see in there?

[Ravindra Kundu, executive]

No, no. We are not saying like that. What we are saying that the mortgage business will be growing maybe at the rate of 30%, and non-mortgage business will be growing at rate of 20%. So obviously, we will try to do better than 20%. That's the endeavor and that is what we are saying always.

[Nischint Chawathe, analyst]

Thank you. That was the last question for today. Thank you very much, participants, for joining us. Thanks, management, for giving us an opportunity to host the call.

[D. Selvan, executive]

Thank you.

[Ravindra Kundu, executive]

Thank you.

[Vellayan Subbiah, executive]

Thanks, Nischint.