Cholamandalam Investment’s total borrowing may remain in range of Rs 1.15-1.18 lakh cr in Q2, says CFO Arul Selvan

However, in the April-June quarter, the company reduced its dependence on term loans and its share fell to 49 percent of the total borrowing from 54 percent in the quarter-ago period. On the other hand, the company increased their dependence on securitisation.

Of the total borrowing in April-June, Rs 52,988.60 crore was from bank term loan and Rs 16,221 crore each through securitisation and debentures.

Explaining this, Selvan said in securitisation they get better yield on the assets than if they directly borrow from the banks.

“Ultimately, we have increased securitisation and lower dependence on bank term loans. So if I borrow from banks, I have to take at MCLR (marginal cost of funds-based lending rate), and with some benefits of yields in securitisation we have increased securitisation and lower bank term loan dependence,” Selvan added.

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How much of the rate hike will the company pass on to customers?

Selvan further said the company has passed around 2 percentage points in floating rate books such as loans against property and home loans. “We have passed around 200 basis points (bps) with regards to the floating rate book such as loan against property book and home loans and SME book,” Selvan said.

Similarly, vehicle finance, which is a fixed rate book of the company, has seen transmission of 100-150 bps in the new disbursement. This was after the Reserve Bank of India (RBI) since May last year hiked the repo rate by 250 bps to contain inflation. It paused rate hikes in April this year after inflation started easing.

Margins compression

Net interest margins of the company in the April-June quarter compressed 70 bps on-year.

As per investor presentation, the company reported net interest margins of 7.3 percent in Q1FY24, compared to 8.0 percent in the same period last year.

Selvan said a large part of their loan book consists of vehicle finance which is fixed rate and runs generally over a period of three years. “So the large part of assets we are seeing were disbursed during the Covid years where interest rates were low and we have also taken lower yield business on those assets,” Selvan said.

He added that new disbursements in vehicle finance are happening at a better rate. But new business volumes will take a longer time to become the large part of the vehicle finance business book, he pointed out.

He said loans against property and home loans usually have a floating rate and interest rate can change as per rate changes, which can be seen in the margins.

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New business

The company is expecting new business to constitute around 15 percent of the overall book in the next two years, Selvan said. Of the total assets under management of the company, new businesses share consists of 10 percent. It stood at Rs 11,337 crore in the April-June quarter.

New business has grown 40 percent on-year in the first quarter of the current financial year. In the corresponding quarter last year, it stood at Rs 2,937 crore.

“These businesses have very good potential to grow and we want to see a wider sampling of these businesses before we start scaling them up,” Selvan said.