Non-banking finance company Cholamandalam Finance reported a 42 percent increase in the second quarter of 2017 on higher demand for light commercial vehicles (LCVs) and used vehicles.The second half will be positive for Cholamandalam, says Vellayan Subbiah, Managing Director of Cholamandalam Investment and Finance in an interview with CNBC-TV18.He also said passenger vehicles continue to do very well for the company. Cars and multi utility vehicles (MUVs) continue to be a huge growth area. In addition to that, the company has seen good growth on the tractor front. The used vehicle market has been picking up a fair bit and company has been gaining market share in that segment as well.On company's gross non-performing assets (GNPA), Subbiah says that they will continue to see better GNPAs going forward in the second half.He added that company's net interest margins (NIM) continue to be strong and it has been able to maintain them at 8.4 percent levels.Below is the verbatim transcript of Vellayan Subbiah's interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.Prashant: There has been an overall improvement this quarter for the company. Could you tell us if you would be able to sustain this performance in the second half of this financial year?A: It has been a strong quarter for us. The second half tends to be much better half for our industry in general. If we take quarter-on-quarter (QoQ) comparisons we might not sustain the same kinds of growth numbers, because the second half of last year also began to get quite strong for us, but we definitely do see a very positive second half. We were very bullish on the second half of this year and we do believe that performance will be very strong.Reema: Vehicle lending has been quite strong, the asset under management (AUM) growth there is about 15 percent this quarter, which segments within the auto space are you seeing the most traction?A: Yes, definitely we see a lot of opportunity and growth on the vehicle side like you said the overall growth has been good, passenger vehicles continue to grow very well for us that&amp;rsquo;s cars and multi utility vehicles (MUVs) that continues to be a huge growth area. In addition to that, we have seen good growth on the tractor front and most of our growth also is coming on the shubh and the used front. The used vehicle market has been picking up a fair bit and we have been gaining market share in that segment as well, so that combination has led to pretty strong growth in that segment.There are also segments that are being nascent for us in which we are growing such as the two-wheeler segment, which is very small for us but we are seeing very growth in that segment as well.Prashant: Is most of the demand that you are seeing on account of replacement?A: It obviously kind of a bit tough to estimate accurately, but if I have to estimate I would say still half the market is being driven by replacement demand and the other half if coming due to fresh requirements from customers. There is still a fair amount of replacement demand, not as much as there was before.Reema: Home equity too has seen a growth of 15 percent. Is there any loan against property (LAP) lending that the company undertakes, because we have heard about defaults increasing in the LAP segment?A: Yes, definitely on the LAP side the industry overall is seeing slightly elevated levels of stress, that also reflected in our portfolio though I would say that the amount of stress is being more mitigated in our portfolio than we have seen in others. We are fairly cognisant of that and are therefore taking a more cautious view to increasing our presence in that segment.The industry growth is still allowing us to grow at the rates that you have seen from us in the last quarter, where we are definitely getting tighter in terms of our lending in that segment today to ensure that our focus is to bring back first a much better portfolio quality before we start increasing disbursements significantly again.Prashant: Talking about the overall gross NPA levels it is improved year-on-year (YoY). What is your guidance going forward?A: Yes, we don&amp;rsquo;t really guide on GNPA, the good thing is like you are seeing is improving. We believe broadly that trend will continue. We will continue to see better GNPAs going forward in the second half and we also have to see when we move from 120 days down to the 3 months requirement in terms of the Reserve Bank of India (RBI) mandate, which we will do ahead of RBI requirements - - that will again affect our GNPA reporting because that number will move up when we move to 90 day.Reema: Net interest margins (NIMs) have been maintained around the 8 percent mark. What&amp;rsquo;s the current cost of fund, has it come down and what&amp;rsquo;s your guidance on the NIM?A: Our NIMs continue to be strong and the good thing is that we have been able to maintain them at 8.4 percent levels. We are seeing two trends, we are seeing a drop in cost of funds but we are seeing a commensurate drop in lending rates as well. The combination of the two is really helping us maintain our NIMs steady and we do think this as a trend will continue.