Q1 VF stress + Q2 Cobrapost gone.

Did MMS pay rating agencies for Chola's rating?

No, MMS had its own borrowing because at points in time they had to invest in the group companies for their capital determination; the rating MMS took was for itself. No rating agency will take a fee from one company for another company. Chola has paid for its own ratings from the market and bank borrowings, and ours is one of the finely priced rating fees incidentally.

The blog mentioned they had reached out to you with relevant questions. Was that yesterday only, before or after they published the blog?

The first communication came yesterday late evening around 3:30 pm via simultaneous mail from contact@cobrapost.com sent to more than 25 email IDs, including company email IDs and other addresses, often the wrong ones. It sounds like the blog publishing and the mails were done in parallel rather than sequentially. They sent these saying please respond by X otherwise we will publish.

On related party transactions, the report cites upwards of INR10,000 crores versus INR2,000 crores reported. How did they arrive at that number, and would you dispute it?

The INR10,000 crore number is over a stretch of 8 years (2017 to 2025) with accumulated data. During the earlier part of this period, certain companies need not have been classified as related party per the regulations because they were not subsidiaries or associates per the definition of related party. After 2022 we started including them as the regulation required, so they are playing on this regulatory requirement to claim non-disclosure when in fact every transaction was disclosed per prevailing regulation.

If we have further clarifications on the documents and responses, whom can we reach out to?

You can reach out to the Company Secretary and CFO for any further clarifications.

Does CBSL primarily provide DSA services?

CBSL is a feet-on-street provider, not a DSA; it is a hiring and maintaining feet-on-street entity. Since we operate in rural Tier 4-6 markets, sales and collection executives recruited through CBSL often have not completed graduation, and CBSL grooms them so that after 5-6 years training they are promoted into Chola. It is an exclusive manpower outsourcing entity and is standard practice in the financial services industry.

What is the quantum of fees paid to rating agencies?

It should be approximately INR10 crores per agency in a given year. The agency reports summed up 8 years of data. For ICRA over the past 8 years it is INR38 crores (ICRA is our largest rating agency) and for CRISIL it is INR17 crores over the same period; others would be less. We use CRISIL for short-term rating, ICRA for long-term and short-term (since we need dual rating) and India Rating for Tier 2 and securitization.

Could you talk about payments to Isha Foundation and sports bodies?

That is standard CSR which is mandatory under law. All our CSR is disclosed in the annual report every year by project, and all projects above INR1 crore are audited. The implementation agencies have work contracts because we need to monitor completion of the project and get a report; if it were a donation we would have no right to monitor. For example, with eye surgery we pay based on number of surgeries conducted at a defined rate.

Are there any plans to simplify and streamline the related party or group structure?

Wherever it is required we are engaging with related parties: Chola Insurance gives the best premium for borrowers and good commission for us; Net Access provides IT services; CBSL provides manpower. From a total expenses perspective these costs are very minuscule and not of significant nature. Even with CBSL we have been progressively moving large parts into the main company itself, reducing volume engaged through CBSL; pricing is at arm's length and verified by both a third-party verification and the statutory auditors.

Is there any plan to change the corporate structure so that such allegations do not reoccur?

We have already done that. Since FY22 onwards the role of MMS has been pared down significantly to only group corporate communication, and over the last three years payouts to MMS have reduced to less than INR1 crore per annum because activities have been taken over by the individual companies. The Murugappa Corporate Board has been broken into three large verticals handled by senior members, and all compensation is now disclosed through the operating companies in which executives work.

Are there any steps taken to reduce cash collection? And what proportion of collections are in cash?

Cash collection has come down significantly from about 50% historically to about 15% now, which is a significant improvement. But cash collection cannot be entirely avoided because vehicle finance customers (market load operators in Tier 5/6 towns supplying vegetables and patties) collect cash from their customers month-end and pay us in cash. This is true for all companies in the industry, not just Chola.

You mentioned INR10 crores expenses to credit rating agencies, with borrowings subject to ratings. On average, what is this expense as a percentage of borrowings, and are there any deviations from market practices?

Total borrowings are approximately INR1,74,000 crores against total rating fees of INR20 crores in the last year across the three agencies, which works out to 0.01% of borrowings. This is totally in line with industry, in fact slightly lower than industry; Arul gets better rates than anybody else. You can get independent verification of this number.

Cobrapost said 38 borrower entities have paid CIFCL interest, but only some have filed charge registers declaring outstanding debt. Did management see the list of entities, and what proportion of lending does this represent?

Most of our borrowers are self-employed non-professionals and small organizations like partnerships or sole proprietorships; they do not follow corporate borrower charge registration which is only applicable for corporates. They are trying to correlate this without understanding the customer profile we handle. For the LAP segment specifically, these are self-employed non-professionals taking loans against private residential properties which are mortgaged, so charge creation correlation is not feasible.

The report stated GNPAs disclosed by the company may be understated. Do you have any clarification on that?

GNPA is verified by the statutory auditors, the internal auditors and the ASM auditors (an ASM audit is also done by an independent agency appointed by the bank); all of them are verified and there can be no secrets about it. We have shown extensive data on GNPAs by every business and just finished a six-week regulatory inspection. These are blanket statements without fact; given our level of disclosure and audit, there is nothing there.