Cholamandalam Finance: Navigating Growth and Asset Quality in Q3 FY26

Cholamandalam Investment and Finance Company Limited (Chola) has reported a robust performance for the third quarter of fiscal year 2026 (Q3 FY26), showcasing significant growth in disbursements and Assets Under Management (AUM). The company's aggregate disbursements reached INR 29,962 crore, marking a substantial 16% year-on-year increase. This strong disbursement activity propelled the AUM to INR 2,27,770 crore, maintaining a steady 20% year-on-year growth. The Net Interest Margin (NIM) also saw a positive uptick, improving by 33 basis points in Q3, a favorable outcome attributed to the progressive impact of RBI's rate cuts on the company's cost of funds. Despite the incorporation of the new labor code, operating expenses remained largely stable on a year-on-year basis, reflecting management's continuous focus on cost discipline and productivity.

The vehicle finance segment emerged as a key growth driver, with disbursements increasing by 17% year-on-year. This growth was broad-based, spanning Commercial Vehicles (CVs), Passenger Vehicles (PVs), and two-wheelers in both new and used categories. The reduction in GST rates further bolstered customer sentiment and demand. The MSME ecosystem, encompassing Loan Against Property (LAP), Small and Medium Enterprise (SME), and Secured Business & Personal Loan (SBPL), also demonstrated strong disbursement growth. LAP disbursements, in particular, surged by 26% year-on-year, while Home Loans (HL) grew by 10% and SBPL by an impressive 30% over Q3 FY25. The company's newly launched Gold loan business, introduced in 2025, disbursed INR 772 crore in Q3 FY26, operating out of 118 dedicated branches in Southern and Eastern India, indicating a successful diversification strategy.

Financial Highlights for Q3 FY26

Strategic Initiatives and Operational Excellence

Chola's strategic initiatives are geared towards enhancing operational efficiency, expanding market reach, and strengthening risk management. The company has made significant strides in digitizing its Loan Origination System (LOS), incorporating features like validated KYC, eKYC, live facial recognition, and automated bureau checks. This digitization aims to streamline loan processing and improve customer experience. The development of the 'Chola One' platform, envisioned as a super-app, will serve as a one-stop-shop for all products, facilitating lead generation, value-added services, and customer service. Furthermore, the company is bolstering its cyber risk mitigation efforts with over 50 initiatives planned for FY26, alongside deploying a comprehensive digital Collection Management System to optimize recovery processes.

Management has been transparent about asset quality trends. While vehicle finance credit costs are noted to be slightly higher than historical levels and peers, management indicated that Stage 2 and early default numbers are improving, with an expectation for overall credit costs to moderate in Q4 FY26. The NCL for the Consumer & Small Enterprise Loan (CSEL) segment is also projected to decrease to below 5% in the next financial year. The company's capital adequacy remains strong at 19.16%, with Tier 1 capital at 14.12%, well above regulatory requirements. The conversion of INR 633 crore of Compulsorily Convertible Debentures (CCDs) in July 2026 is expected to further enhance Tier 1 capital.

Segmental Performance and Outlook

The MSME ecosystem, comprising LAP, SME, and SBPL, demonstrated robust income growth, with LAP contributing INR 1,561 crore, SME INR 260 crore, and SBPL INR 197 crore to the total. The consumer ecosystem, including HL, CSEL, and Gold loans, generated INR 1,578 crore in income, with HL accounting for INR 850 crore and CSEL INR 700 crore. The Gold loan segment, though nascent, quickly contributed INR 28 crore. The company's diversified borrowing profile, both by instrument and investor type, underscores its financial resilience.

Management's guidance for the upcoming quarters remains positive. They anticipate Q4 FY26 to reflect improved performance, with overall disbursements expected to surpass Q3 levels. The cost of funds is projected to see a reduction of 5 to 10 basis points in the next quarter, which should positively impact NIM. Home Loan AUM is expected to grow by 28-30% over the next two years, with a steady-state NCL of 0.5-0.6% and PBT ROA of 4.5%. The company continues to focus on retail customers in smaller towns and rural areas for LAP, leveraging its pan-India presence to improve margins.

Concluding Thoughts

Cholamandalam Investment and Finance Company Limited continues to demonstrate strategic clarity and disciplined execution. The company's ability to drive growth across diverse segments, coupled with proactive risk management and digital transformation initiatives, positions it favorably for sustained performance. While monitoring asset quality trends remains crucial, particularly in vehicle finance and SBPL, management's transparent communication and strategic adjustments instill confidence. Chola's commitment to expanding its product offerings and strengthening its operational backbone reflects a forward-looking approach, aiming to deliver consistent value to its stakeholders.