CSL Finance

CSL Finance reported a robust Q2 FY26, with Assets Under Management (AUM) reaching Rs. 1,397 crores, marking a 29% year-on-year growth and an 8% sequential increase. Net Interest Income (NII) stood at Rs. 14.9 crore, up 10% YoY and 2% QoQ. Profit After Tax (PAT) surged by 37% YoY and 15% QoQ to Rs. 24.5 crore, while Profit Before Tax (PBT) grew 17% YoY and 5% QoQ to Rs. 28.85 crore. The company's asset quality showed improvement, with Gross NPS at 0.51% and Net NPS at 0.39%.

The SME retail business demonstrated visible progress in Q2 FY26, with disbursements growing significantly by 93% YoY and 61% sequentially, albeit on a smaller base. This upturn is attributed to corrective measures, including refining credit policies, optimizing product portfolio, strengthening underwriting processes, and restructuring teams. Management views this as an early sign of success, aiming to drive responsible growth in this segment while maintaining asset quality. The company targets an SME AUM of Rs. 750-800 crores by next financial year and 45% of total AUM by end of FY27.

CSL Finance reported a steady improvement in asset quality, with write-offs moderating and recoveries picking up. Gross NPS decreased to 0.51% in Q2 FY26 from 0.56% in Q1 FY26, and Net NPS improved to 0.39% from 0.42%. Historically, recovery rates for written-off assets have been strong, with 95% for 2021-22, 75% for 2022-23, and over 90% for 2023-24 write-offs, largely due to the secured nature of the portfolio and SARFAESI processes. The company expects this positive recovery trend to continue.

The company maintains a strong liquidity position with Rs. 111.5 crore of balance sheet liquidity and Rs. 35 crore in undrawn credit lines. CSL Finance has observed benefits from recent rate cuts, with the cost of fresh borrowings reducing by 60-70 basis points since the start of the year. Over 50% of existing borrowings have already been repriced, with the remaining 50% expected to follow. The effective cost of borrowing, which was 10.9% six to nine months back, is targeted to come down to around 10.3-10%.

CSL Finance is expanding its distribution and funding base, adding two new branches and several spoke locations in Q2. The current branch network of 45 is planned to increase to 50 in coming quarters and around 60 by year-end. The company aims to increase per-branch disbursement from the current Rs. 35 lakh to Rs. 50 lakh. Operational processes have been simplified, and SOPs implemented, leading to higher active accounts and a target disbursement turnaround time of 7-15 days for Rs. 20-25 lakh files.

The company's Net Interest Margin (NIM) saw some compression in Q2 FY26, partly attributed to negative carry from surplus liquidity due to disbursement bunching and lumpy wholesale business costs. Management expects NIMs to be 'same or a little better' going forward^⏳. The weighted average interest rate (IR) on advances is projected to remain stable at 18-18.25%, despite the introduction of a new product with a slightly lower IR of around 16% for a smaller portion of the portfolio.

While overall growth is positive, AUM in Rajasthan and Gujarat remained flat, which management attributes to higher foreclosure rates in these regions due to intense competition from smaller NBFCs. Some less cost-efficient branches were realigned. The company acknowledges the competitive landscape, particularly with MFIs shifting to secured micro-lending, but believes its focus on service delivery, faster processing, and robust internal processes provides a competitive edge.