Chola finance infuses Rs 60 cr in subsidiary

Cholamandalam Finance has infused Rs 60 crore as part of turning around its subsidiary, Cholamandalam Factoring Limited (CFACT). The company has also provided impairment provision since the capital is almost fully-eroded on account of the losses incurred in CFACT.

The infusion was done last year as equity share capital aggregating Rs 60 crore to strengthen the capital base of CFACT. The company recorded a gross income of Rs 0.02 crore during the year ended March 31, 2012 and reported a loss before tax of Rs 61.29 crore, as against a loss of Rs 8.16 crore in the previous year.

“Chola Factoring’s numbers were basically associated with the personal loan business. The subsidiary will not have any losses going forward,” said S Vellayan, managing director, Cholamandalam Finance.

Over the last two years, the investment into the subsidiary was Rs 80 crore. “Going forward, all the assets and whatever collections we have made there would be an inflow and we do not foresee any further losses,” he added.

Responding to a question on whether Chola Factoring will get folded up or it has some plans to start some new business venture since there is no personal loan (PL) portfolio remaining with it, Vellayan said that they were just getting done with the year. But, that is definitely one of the things on the table for this year to figure out what to do with Chola Factoring, he said.

Addressing analysts, Vellayan said “We are exploring a couple of alternatives because the business does have tax loss carry forward. So, basically it is not like we are going to get back into unsecured lending anything like a personal loans business. Basically, we will either choose to do something with that business and could absorb some of the tax losses carried forward that it has or in the worst case shutdown that entity. But definitely we do not expect or we do not have any further liabilities from that business in terms of losses in future years.”

On its other subsidiary, Cholamandalam Securities Limited (CSEC), which provides security services predominantly for retail and smaller corporates, Vellayan said, “Last year was a very tough environment for the industry and we were no different on that front. So, we continued to have similar challenges on Chola Securities. We are taking some steps to basically mitigate the potential loss from that business this year”.

However, part of that business has also been driven by the overall stock market conditions because we do not do a lot of institutional business in securities predominantly in retail, he added. In securities, the company’s investment was around Rs 20 crore and it had an accumulated loss of Rs 9 crore.

CSEC recorded a gross income of Rs 6.32 crore for the year ended March 31, 2012 and made a loss before tax of Rs 2.58 crore as against a profit of Rs 0.49 crore in the previous year.