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Cholamandalam Financial Holdings Ltd.

BSE: 504973 Sector: Financials
NSE: CHOLAHLDNG ISIN Code: INE149A01033
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OPEN 684.10
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VOLUME 12802
52-Week high 757.50
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P/E 542.33
Mkt Cap.(Rs cr) 13,131
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OPEN 684.10
CLOSE 689.50
VOLUME 12802
52-Week high 757.50
52-Week low 362.10
P/E 542.33
Mkt Cap.(Rs cr) 13,131
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Cholamandalam Financial Holdings Ltd. (CHOLAHLDNG) - Director Report

Company director report

Dear Shareholders

The Directors take pleasure in presenting the 72nd Annual Report together with theaudited financial statements of the Company for the financial year (‘FY') ended March31 2021.

COMPANY OVERVIEW

Cholamandalam Financial Holdings Limited (‘CFHL') is a Core Investment Companyholding substantial investments in the following financial services / risk managementcompanies of Murugappa Group (hereinafter collectively referred as ‘group companies')and serves large number of customers by providing loans for asset acquisition throughfinancing asset and family protection through general insurance and risk managementservices.

Cholamandalam Investment and Finance Company Limited (‘CIFCL') engaged innon-banking financial business;

Cholamandalam MS General Insurance Company Limited (‘CMSGICL') engaged in generalinsurance business;

Cholamandalam MS Risk Services Limited (‘CMSRSL') engaged in risk management andengineering solutions business.

REGISTRATION AS A CORE INVESTMENT COMPANY

CFHL is registered as a Non-Deposit taking Systemically Important Core InvestmentCompany (‘CIC') pursuant to the receipt of Certificate of Registration dated January6 2020 issued by the Reserve Bank of India (‘RBI') under section 45-IA of theReserve Bank of India Act 1934.

SHARE CAPITAL

The paid-up equity share capital of CFHL as on March 31 2021 was Rs 18.77 Crore.During the year 6952 equity shares were allotted upon exercise of vested stock options byeligible option grantees under the Company's Employees Stock Option Schemes 2007 and 2016.

STANDALONE FINANCIAL RESULTS

(Rs in Crore)

Particulars 2020-21 2019-20
Total Income 58.14 90.90
Total Expenses 24.24 3.97
Profit Before Tax 33.90 86.93
Tax Expense 12.19 3.60
Profit for the year 21.71 83.33
Other Comprehensive Income 0.53 (0.61)
Total Comprehensive Income 22.24 82.72

DIVIDEND

The Board of Directors recommend a dividend at the rate of 55% i.e. Rs 0.55 per equityshare of face value of Rs 1/- each for the year ended March 31 2021.

APPROPRIATIONS

The Company has transferred a sum of Rs 4.35 Crore (previous year: Rs 16.67 Crore) toSpecial Reserve under section 45-IC of the Reserve Bank of India Act 1934.

MACRO ECONOMIC ENVIRONMENT

The year 2020 was dominated by the COVID-19 global pandemic that triggered the deepestrecession in nearly a century threatening health disrupting economic activity andhurting well-being and employment. To curb the rapid spread of the virus governmentsacross the globe imposed several measures that restricted the mobility of people andgoods which impeded trade flows at local regional and international levels. This led tolower external demand disruptions in supply chain and drop in commodity prices includingoil. Emerging and developing economies were hit hard especially those with the highestnumber of COVID cases. While the agriculture sector displayed resilience manufacturingand services sectors especially tourism and hospitality were worst affected. Globaleconomic prospects improved markedly during the second half year of 2020 largely aided bythe gradual deployment of vaccines and announcements of fiscal support in some countriesonly to be dampened by resurgence of a second wave during the end of the year. The worldeconomy is expected to shrink to 4.3% in 2020 and grow by 5.8% in 2021. However thereturn to pre-pandemic levels is likely to be long uneven and uncertain.

On the domestic front India's GDP growth had been on the decline even before thepandemic struck earlier last year. The impact of COVID-19 on the economy has beenmultifarious affecting both formal and informal sectors.

The country experienced economic recession for the first time in four decades. Monthsof lockdown during the first quarter resulted in free fall of employment which slowlystabilized after the economy steadied in most parts of the country. Triggered by thepandemic situation the GDP contracted by 24.4% during the first quarter of FY 21. TheGovernment's financial stimulus package under the ‘Atmanirbhar Bharat Scheme' about10% of the national GDP was a prudent measure to mitigate pandemic's adverse impact onthe economy. Acting in tandem with the Government the Reserve Bank of India's revivalmeasures such as loan moratoriums unsecured loans for MSMEs cut in repo rates and lowerinterest rates on new loans largely aided to ensure adequate liquidity and curb the riseof non-performing assets. Monetary policy remained accommodative during the year. Witheasing of the lockdown and several relief measures the economy started showing signs ofrecovery from the second quarter and the GDP decline fell to 7.4% in Q2 and grew by 0.4%in Q3 of FY 21. This upsurge indicates progression of V-shaped recovery demonstrated by asustained resurgence in high frequency indicators such as power demand e-way bills GSTcollection steel consumption etc.

Turning to the economy's key sectors growth in agriculture sector is estimated at 3.4%in FY 21 backed by a normal monsoon during the pandemic year. Industry and services sectoris likely to contract by 9.6% and 8.8% respectively. Among service industry while fewsectors registered growth driven by pent up demand high contact sectors such astransportation hospitality and entertainment continue to witness a sluggish recovery andis projected to contract by 18%. India's external sector provided an effective cushion togrowth with the country recording a current account surplus during the first half yearmainly supported by strong services exports and weak demand leading to a sharpercontraction in imports. India continued to be a preferred destination for FDI in FY 21amidst global asset shifts towards equities. Overall the economy's GDP contracted by 7.3%in FY 21 compared to a growth of 4.2% in FY 20.

To further provide an impetus to the economy active measures such as theproduction-linked incentive scheme in key sectors for enhancing manufacturing capabilitiesand exports vaccination plan fiscal consolidation increasing infrastructure investmentsetc. besides numerous tax reforms and regulatory changes were announced in the unionbudget 21-22. However the recent spike of COVID-19 infections is expected to slow downthe national economy during the first quarter of FY 22. The domestic growth in FY 22greatly depends on dealing with this second wave of the pandemic.

Localised lockdowns as opposed to a national lockdown the stimulus measures andreforms initiated by the Government and liquidity measures by the RBI are expected tosupport industrial activity and demand.

The launch of vaccination programme in the country is expected further boost momentumto the economic recovery. While major financial institutions expect strong growth indomestic GDP World Bank has pegged GDP growth of India at 8.3% in FY 22 given thepandemic induced uncertainty from second wave.

BUSINESS ENVIRONMENT

CFHL earns revenue primarily by way of dividend income from investments held in groupcompanies. An overview of the financial services sector in which the company operatesalong with a business update of the group companies during FY 21 is summarised in thefollowing paragraphs.

NBFC Industry & Business Update

India's financial sector is a highly diversified one comprising commercial banksinsurance companies non-banking financial companies co-operatives pension funds mutualfunds and other smaller financial entities.

The sector predominantly driven by banking and non-banking financial companies(‘NBFCs') have witnessed exponential growth in the last decade driven largely byregulatory reforms and their ability to cater to unbanked areas through innovativeproducts and service delivery mechanisms. Before the onset of the pandemic the sector wasdealing with the contagion effects associated with the collapse of a few NBFCs andco-operative banks. Disruptions were felt in operations of NBFCs during the June quarterof FY 21 when disbursements and collections were severely hit by the hard-braking ofeconomic activity. Though collection efficiency improved since then it is still way offpre-covid levels for small businesses and the unsecured and wholesale segments given thevolatility in borrower cash flows. Research analysts have estimated NBFCs to grow by 9.5%year-on-year in FY 22.

Cholamandalam Investment and Finance Company Limited (‘CIFCL') a NBFCincorporated in 1978 is one of the leading comprehensive financial service provideroffering vehicle finance home loans loan against property etc. to a wide range ofcustomers.

Vehicle Finance

CIFCL's Vehicle Finance (‘VF') business comprising of diversified portfolio viz.commercial vehicles passenger vehicles and used vehicles continues to be the majorsegment contributing 72% of its aggregate assets under management (‘AUM') as at March31 2021. The auto industry was hit badly in FY 21 coupled with the structural slowdownwhich was already prevailing in the segment.

The domestic commercial vehicle (‘CV') industry closed FY 21 with a 21%de-growth after recording a 29% negative growth in FY 20 which is predominantly onaccount of the disruption in sales due to lockdown restrictions negative customersentiments and economic slowdown. The CV sales is expected to grow from second half of FY22 after two consecutive years of volume contraction supported by the low base andexpectation of improved economic activity. Tractor industry had a growth of 27% in FY 21due to healthy farm cash flows on the back of a normal monsoon and minimal COVID 19 impactin rural areas. The momentum is expected to continue in FY 22 with a moderate growth of 5%to 10% aided by a normal monsoon healthy crop output and least impact of pandemic on thefarming community. Domestic car and utility vehicle industry witnessed three years ofnegative growth which is the first time in a decade majorly attributed to muted consumersentiments and higher cost of ownership. The industry is expected to post a favourablegrowth subject to quicker pick-up in economic activity after the second wave of thepandemic improved consumer sentiments supported by resilient rural demand due tofavourable monsoons. Two-wheeler industry had a de-growth of 13% in FY 21 due to higherinflation levels and reduced discretionary spending. The industry is expected to grow ataround 10% to 15% in FY 22 on a severely contracted base.

The Vehicle Finance business disbursed Rs 20249 Crore during FY 21 as against Rs23387 Crore in the previous year registering a de-growth of 13% primarily due to drop inindustry volumes across segments caused by the pandemic. Profits before tax (‘PBT')during the year was Rs 1287 Crore as against Rs 945 Crore in the previous year. The VFbusiness continued its focus on maintaining asset quality through an aggressive collectionstrategy which helped in restricting gross stage 3 assets to 3.08% despite being achallenging year due to a stressed macro-economic environment. CIFCL has designed amulti-pronged long-term strategy to minimize the cost of operations and credit losses tomaximize return on assests and customer experience. Operating model enhancements have beenprioritized and are being implemented for re-imagination of existing processes at aproduct level to augment sales drive operating efficiencies reduce costs and balancecredit risk through better pricing. The company has implemented multiple collectionprocesses which enable customers to shift towards alternate digital payment modes. Thebusiness will endeavour to expand and strengthen its existing relationships withcustomers manufacturers brokers and dealers utilizing new tools and platforms.

Loan against Property

The MSME community was impacted majorly during the first half of FY 21. However theintroduction of targeted initiatives by the Government and the RBI like Emergency CreditLine Guarantees Scheme (‘ECLGS') moratorium and restructuring helped MSMEs torebound in the second half year and is expected to continue providing momentum in FY 22 aswell. CIFCL's loan against property (‘LAP') business continues to focus on asystematic approach to build a healthy portfolio mix with more than 80% of portfolio asself-occupied residential properties (SORP) and an average loan ticket size of less thanRs 50 Lakh. The business had reached pre-COVID level of monthly disbursements by the endof Q2 of FY 21 with adequate credit policy changes in place in tune with marketchallenges. LAP business disbursed nearly Rs 800 Crore under ECLGS as of March2021. The business was also proactive in providing moratorium and ex-gratia benefit toeligible customers as announced by the Indian Government.

Business AUM (Net) for LAP business grew by 14% to Rs 14777 Crore (previous year: Rs12960 Crore) and disbursements registered a decline of 1% to Rs 3627 Crore(previous year: Rs 3662 Crore).

Home Loans

Home Loans (‘HL') business offers loans for self construction purchase of new andresale flats/ independent houses balance transfer from other financiers top-up loans forexisting customers. Growth in the affordable housing finance segment continued to out-pacethe housing sector. The demand was subdued through FY 21 and green shoots began to emergeby Q3 of FY 21. Analysts expect the housing sector to grow about 6~10% in FY 22 andaffordable housing to grow at 12~15% in the same period. However the impact of the secondwave of COVID on the economy remains to be assessed.

As on March 31 2021 the HL business had 34392 live accounts (44% growth Y-o-Y) withan AUM of Rs 4345 Crore (39% growth Y-o-Y). 87% of this portfolio is in Tier II III IVcities and towns. Disbursements of HL segment grew by 2% in FY 21 from Rs 1505 Crore inFY 20 to Rs 1542 Crore in FY 21.

Lower Middle-Income-Group customers continue to be the target group for HL business.96% of the portfolio comprise business owners with significant business vintage buyingtheir first home. Lending for self-construction remains to be a strong focus withsignificant proportion of the portfolio sourced from this segment.

Other functions

During the year the NBFC subsidiary has upgraded its system with a host of integrationsto reduce physical touch-point with stakeholders. Online payment modes for collectionshave been introduced to provide customers with multiple payment options. For vendorsonline portals have been introduced to liaise and share documents with the business.Automation continues to be a key initiative and technology tools are deployed forautomation of repetitive activities across functions wherever opportunity presents.

Outlook

Business outlook for FY 22 remains uncertain with onset of second wave of COVID-19.Vehicle finance business will continue to be the mainstay for CIFCL. While the loanagainst property portfolio has also been a significant contributor to the company'sgrowth the home loan business has a great potential to be built into a solid portfolioconsidering the expertise of the company in handling typical customer profiles.

General Insurance Industry & Business Update

General insurance industry underwent a turbulent phase during the FY 21. Slowdown ineconomic growth due to the lockdown impacted insurance premium growth for the industry.The impact was felt heavily in the first half of the year. With improving automobile sales(primarily non-commercial vehicles) the industry commenced recording growth during thesecond half year. Government's policy of insuring the uninsured has gradually pushedinsurance penetration in the country and proliferation of insurance schemes. The generalinsurance industry grew by 2% in FY 21 and achieved a Gross Written Premium ('GWP') of Rs1698 billion with about 57.7% market share of private players and 42.3% of PSU players.Motor insurance business witnessed a severe impact at the industry level driven by sharpdecline in motor vehicle sales and deferment of third party price increase. Amongst otherlines of business the property insurance business registered a premium growth of 28.1%while the motor line of business registered a de-growth of 1.7% and the health line ofbusiness grew for the industry. Cholamandalam MS General Insurance Company Limited('CMSGICL') the insurance business segment of CFHL is registered with the InsuranceRegulatory and Development Authority of India (‘IRDA') to carry on general insurancebusiness. CMSGICL offers a wide range of insurance including motor travel healthaccident home and other types of insurance for corporate customers.

In a highly competitive business environment CMSGICL ranks 8th position among privateinsurers with a market share of 2.9% (excluding crop insurance).

CMSGICL recorded a GWP of Rs 4705 Crore (previous year: Rs 4824 Crore) for the yearended March 31 2021. The GWP growth was largely driven by acquiring new bancassurancetie-ups in state-owned banks entry into large motor OEM programs growth in proprietarychannels in Tier II III and IV towns and in commercial lines. Steep drop in commercialvehicles premia rendered the GWP flat even though growth was attained in other lines andcategories. The company's claims ratio was rendered higher as a result of a charge of overRs 130 Crore of COVID-19 related health claims which dented the underwriting resultsin the health insurance business. The company secured renewal of its key bancassurancearrangements with state owned banks. CMSGICL made underwriting surplus in most lines ofbusiness except motor third party. The company with its thrust on retail risks continuesto adopt prudent underwriting strategies and processes. Customer base of CMSGICL grewstrongly to over 1.65 Crore during the year constituting a growth of more than 17% overthe previous year.

Motor Insurance

Motor insurance business registered a premium of Rs 3429 Crore in FY 21 a de-growthof 6.2% over the previous year. The company stepped up the renewals ratio in the carsportfolio even as the pandemic impacted the commercial vehicles. The premium pricing inmotor own-damage witnessed severe pressure with discounts across vehicle categories risingto new highs. This has caused an adverse change in the motor OD claims ratios of allplayers in the industry. In motor third party the premium insufficiency continued inseveral sub-segments due to deferral of increase in premium. This was further accentuatedwith the increase in minimum wage levels and inflation in medical care costs. Thecumulative effect of the above resulted in adverse combined ratio in the motor line ofbusiness.

Property and Casualty Insurance

Premium from Commercial lines of business grew to Rs 571 Crore mainly driven by 30%growth in the fire line of business. Marine and Engineering lines of business wereimpacted by lower levels of economic activity. Miscellaneous lines grew well during theyear.

CMSGICL registered growth across its verticals of Indian commercial SME andbancassurance.

The company continues to follow disciplined underwriting and prudent risk selection inthe highly demanding environment. Higher proportion of business from ‘preferred'category risks geographical spread of risks line size management have all ensuredimprovement in the claims ratios of the commercial insurance business.

Health Accident and Travel Insurance

The Health Accident and Travel insurance business grew by 13.5% during FY 21. Muteddisbursements in motor NBFCs / Housing Finance Companies (HFCs) impacted the benefit ofproduct bundling in health and accident products leading to lower growth. The companystepped up on the addition of dedicated health agents (including POSP) and expanded reachof bancassurance distribution to more distribution points to ensure that retail indemnitybusiness from agency and banca distribution grew strongly. The company also distributedCOVID-19 linked health products and the standard Arogya Sanjeevani products besidesrevamping its existing product portfolio to align with evolving customer needs triggeredby the pandemic. A host of new product offerings both indemnity and benefit are on theanvil for launch. Overall loss ratios in health line of business was adverse due tospread of COVID-19 virus which affected the underwriting results of the segment.

Other functions

FY 21 witnessed claims management function stepping up speed of disposal while handlinglarger volumes with efficiency and productivity. Higher levels of compromise settlementsin motor third party were secured during FY 21. With respect to reinsurance (‘RI')function the extended monsoon together with multiple cyclones in the east and west coastsduring the year caused inundation related losses. These losses largely impacted theretained risk of the company. The impact on proportional and non-proportional treatiesfrom these natural calamities was marginal. Both the proportional and non-proportionaltreaties generated surplus for the reinsurers. During the year new reinsurancearrangements in respect of its product offerings were put in place. The companyimplemented several new tech platforms and IT initiatives including digital integrationwith channel partners such as OEMs bancassurance partners digital partners etc. forseamless issuance of policies a fully digitized platform for on-boarding of POSP agentsintroduction of Robotics Process Automation in claims and finance functions AI poweredchat-bot enabled on corporate website to benefit customer self-service etc.

Outlook

The general insurance industry has rebounded well from the impact of the first wave byrecording a growth of

8.8% in Q4 of FY 21. A similar recovery and rebound is expected as the infection ratesubsides and vaccination levels enhances in FY 22. The anticipated increase in interestrates in the economy will have a positive impact on the investment income for all playersin the industry.

The insurance business which derives a good portion of its GWP from motor dealershipsand financier partners in the motor space recognises the possible impact and has drawnspecific actionable counter measures to reduce the impact.

Risk Management Solutions - Business Update & Outlook

Cholamandalam MS Risk Services Limited (CMSRSL) is engaged in providing riskmanagement and engineering solutions in the field of safety health and environment inassociation with CMSGICL. Despite witnessing a slow down during the first half thebusiness restored to normalcy in the second half year. CMSRSL strengthened its order bookby Rs 38 Crore during the pandemic year which includes few long-term contracts forsecondment business.

The business is backed by a strong technical team of multidisciplinary & certifiedprofessionals having exposure to domestic and international markets. During the yearCMSRSL introduced and started promoting virtual sessions for specific studies for clients.Towards improving operations the business deployed SRP software to manage its end to endbusiness operations starting from business inquiry to project management to finance. As akey product offering in line with the emerging environment a digital division has beenput in place to explore and supplement the existing core services with digitalization andlaunch digital products.

CMSRSL continues to offer services to CMSGICL and its clients through value-addedofferings like thermography safety audits and cargo loss minimization studies.

Even though the business of CMSRSL has a robust carry forward order book with fewlong-term secondment contracts challenges in execution of consulting projects due to theoutburst of the second wave of the pandemic is anticipated. Business expects operatingconditions to improve from the second quarter of FY 22 as the second wave subsides andvaccination levels improve within the country.

FINANCIAL REVIEW - SUBSIDIARY / ASSOCIATE / JOINT VENTURE COMPANIES

CFHL earned an income of Rs 58.14 Crore (previous year: Rs 90.90 Crore) and profitbefore tax was Rs 33.90 Crore (previous year: Rs 86.93 Crore) for the financial year endedMarch 31 2021. Lower profits was on account of lower dividend income and interest costrecognised on borrowing made for equity investment in subsidiary company. Aggregateinvestments stood at Rs 1279.22 Crore (previous year: Rs 1278.35 Crore) as on March 312021. During the year under review the Company has issued and allotted 1500 unsecuredredeemable non-convertible debentures (‘NCDs') of Rs 1000000/- each for cash atpar aggregating to Rs 150 Crore on private placement basis. Fund raised through theissue of NCDs has been utilized towards repayment of the subsisting term loan of theCompany.

Credit Rating

India Ratings and Research Private Limited has assigned a rating of IND AA+/Stable forthe debt instruments issued by CFHL during the financial year.

Cholamandalam Investment and Finance Company Limited ('CIFCL')

CFHL holds 45.47% in the paid-up equity share capital of CIFCL as on March 31 2021.Securities of CIFCL are listed and traded on the National Stock Exchange of India Limited(NSE) and the BSE Limited (BSE). CIFCL is treated as a subsidiary under Ind AS. Rationalein this regard is provided under Note 24 of standalone financial statements.

Business Assets under Management ('AUM') grew by 16% to Rs 69996 Crore as at March 312021 (previous year: Rs 60549 Crore). Loan disbursements aggregated to Rs 26043Crore (previous year: Rs 29091 Crore) registering a decline of 10% during the year.Profit after tax grew by 44% to Rs 1515 Crore (previous year: Rs 1052 Crore). Investmentportfolio of CIFCL as at end of FY 21 was Rs 1619 Crore including investments ingovernment securities of Rs 1546 Crore. CIFCL holds a management overlay of Rs 1100Crore as at March 31 2021 which includes an additional one-time provision createdfor COVID-19 in FY 21 for Rs 566 Crore and also retaining additional provision as on March31 2020 of Rs 534 Crore. CIFCL maintained a comfortable ALM position throughout the yearwithout availing moratorium on its debt obligations. As at end of FY 21 the capitaladequacy ratio stood at 19.1% as against the regulatory requirement of 15%. During theyear the company raised CP of Rs 12965 Crore of which Rs 9900 Crore were repaid.Outstanding NCDs stood at Rs 8936 Crore and Tier II borrowings stood at Rs 4062 Crore ason March 31 2021.

CIFCL paid an interim dividend of Rs 1.30/- (65%) per equity share of face value of Rs2/- each for the FY 21. The Board of CIFCL has recommended a final dividend of Rs 0.70(35%) per share for FY 21 subject to their shareholders' approval.

CIFCL's subsidiary companies are Cholamandalam Securities Limited ('CSEC') andCholamandalam Home Finance Limited ('CHFL'). CSEC is engaged in stock broking andinvestment advisory services. During the year CSEC focused on creating three distinctbusiness lines for enhancing revenues and productivity - broking wealth and insurancedistribution. The broking business grew 30% and wealth business grew by 12% in FY 21. CSECachieved a gross income of Rs 30.14 Crore (previous year: Rs 23.59 Crore) andprofit before tax of Rs 6.84 Crore (previous year: Rs 4.10 Crore) for the year ended March31 2021 and the business AUM crossed Rs 1240 Crore as at the end of FY 21.

CHFL recorded a gross income of Rs 37.15 Crore (previous year: Rs 38.61 Crore) and madea profit before tax of Rs 2.62 Crore (previous year: loss of Rs 0.77 Crore) for the yearended March 31 2021. The company is a corporate agent with composite licence fromInsurance Regulatory and Development Authority of India for distributing insuranceproducts. The company is seeking registration with RBI for HFC license.

Cholamandalam MS General Insurance Company Limited ('CMSGICL')

CFHL holds 60% in the paid-up equity share capital of CMSGICL - a joint venture withMitsui Sumitomo Insurance Company Ltd. Japan and is a material subsidiary. The IRDAI hasdeferred the implementation of Ind-AS for insurance companies. Therefore financials ofCMSGICL have been restated as per Ind-AS for consolidation purposes and figures of CMSGICLreported in the annual report are under Ind-AS.

CMSGICL achieved a gross written premium of Rs 4705 Crore during the FY 21 (previousyear: Rs 4824 Crore) and the profit before tax was Rs 367 Crore (previous year:

Rs 216 Crore). The Company's investment portfolio grew to Rs 10262 Crore as at March31 2021 (previous year: Rs 9027 Crore). In the context of the pandemic environment andwith interest rates rendered higher in first few months of the year the company churnedand deployed its investments largely in central and state government securities and pareddown exposures to corporate bonds.

Investments of CMSGICL in government securities stood at 74.91% of the investmentassets (previous year: 70.39%). Solvency ratio of CMSGICL as on March 31 2021 was2.08 times as against the regulatory requirement of 1.50 times.

With a view to conserve its resources the Board of CMSGICL has not recommendeddividend for FY 21.

Cholamandalam MS Risk Services Limited ('CMSRSL')

The Company holds 49.5% in the paid-up equity share capital of CMSRSL a joint venturewith Mitsui Sumitomo Insurance Company Ltd. Japan and has a technical collaboration withInter Risk a group company of Mitsui Sumitomo Insurance Group.

CMSRSL achieved an income of Rs 43.59 Crore (previous year: Rs 48.90 Crore) and profitbefore tax of Rs 2.64 Crore (previous year: Rs 5.62 Crore) for the year ended March 312021. The Board of CMSRSL has recommended a final dividend of Rs 1/- per share on itsequity share of face value of Rs 10/- each for the FY 21.

CONSOLIDATED FINANCIAL RESULTS (Rs in Crore)

Particulars 2020-21 2019-20
Total Income 13904.90 13135.73
Total Expenses 11504.62 11330.11
Profit Before Tax of Profits from Associate / Joint 2400.28 1805.62
Venture and Tax
Share of Profitfrom Associates
0.32 1.27
/Joint Venture (Net of Taxes)
Profits Before Tax 2400.60 1806.89
Tax Expense (636.38) (641.84)
Profits for the year 1764.22 1165.05
Minority Interest (939.58) (614.20)
Net Profit for the year
attributable to owners of the Company 824.64 550.85

BUSINESS REVIEW - SUBSIDIARY ASSOCIATE AND JOINT VENTURE COMPANIES

The subsidiary companies of CFHL are Cholamandalam MS General Insurance Company Limitedand Cholamandalam Health Insurance Limited. Under Ind-AS Cholamandalam Investmentand Finance

Company Limited is treated as a subsidiary company and Cholamandalam MS Risk ServicesLimited is a joint venture company of CFHL. Cholamandalam Health Insurance Limited did notpursue its main business objects and had filed an application for striking off its namefrom the Register of Companies during the year and consequently ceases to be a subsidiaryof CFHL.

There has been no change in the nature of business of these companies during the year.Business performance of these companies is detailed in earlier paragraphs of this report.

A report on the performance and financial position of each of the aforesaid companiesas per section 129(3) of the Act read with the Companies (Accounts) Rules 2014 in theprescribed form AOC-1 is annexed to this Report as Annexure A. Consolidatedfinancial statements of the Company prepared in accordance with the Companies Act 2013('the Act') and the relevant Accounting Standards forms part of the annual report.

The annual report containing standalone and consolidated financial statements will beposted on the Company's website www.cholafhl.com. Annual accounts of the subsidiarycompanies will also be posted on the Company's website and be made available forinspection by shareholders through electronic mode until the date of the Annual GeneralMeeting ('AGM').

COVID-19 BUSINESS UPDATES

The pandemic induced lockdowns and restrictions imposed by the Government acrossseveral jurisdictions in which the group companies operate have considerably impacted thebusiness operations during the year ended March 31 2021. Notes in this regard are givenunder Note 1.3 of the standalone financial statements and Note 4.1 of the consolidatedfinancial statements for the year ended March 31 2021.

In accordance with the RBI guidelines related to "COVID-19 regulatorypackage" dated March 27 2020 and subsequent guidelines on EMI moratorium dated April17 2020 and May 23 2020 CIFCL has offered moratorium to its customers based on theeligibility for EMIs falling due between March 1 2020 to August 31 2020. FurtherCIFCL offered resolution plans to its customers pursuant to the RBI circular on‘Resolution framework for COVID-19 related stress' dated August 6 2020. The impactof COVID-19 pandemic including the ongoing second wave on CIFCL's operations andfinancial metrics will depend on the future developments which remains uncertain. Whilethe Company continues to monitor the evolving situation on an ongoing basis CIFCL hasconsidered financial implications including expected credit loss ('ECL') provisioning inthe financial statements and made cumulative ECL provision for loans as on March31 2021 which aggregates to Rs 2444 Crore (previous year: Rs 1523 Crore).

The impact of COVID-19 on CMSGICL's operations and its financial statements has beenassessed and the assessment includes but not limited to valuation of policy relatedliabilities and solvency position of CMSGICL as at March 31 2021. Further there havebeen no material changes in the controls or process followed in the financial closingprocess of CMSGICL. The Company continues to closely monitor the implications of thesecond wave of the pandemic on its operations and financial statements for any emerginguncertainties.

DIRECTORS

At the 71st AGM held on August 12 2020 the appointment of Mrs. Vasudha Sundararaman asan Independent Director of the Company for a term of five years commencing February 122020 was approved.

Mr. V Ravichandran (DIN: 00110086) Non-Executive Director stepped down from the Boardwith effect from the close of business hours on November 11 2020. The Board places onrecord its appreciation for the contribution rendered by Mr. Ravichandran during histenure on the Board.

Based on the recommendation of the Nomination & Remuneration Committee of theBoard Mr. Vellayan Subbiah (DIN: 01138759) has been appointed as an additional directorwith effect from November 11 2020 and holds office till the date of the ensuing 72ndAGM. The Company has received a notice from a shareholder proposing the appointment of Mr.Vellayan as a director of the Company. The Board recommends his appointment as a directorof the Company and the resolution proposing the appointment forms part of the Notice ofthe 72nd AGM of the Company.

As per the provisions of section 152 of the Act Mr. M M Murugappan (DIN:00170478) retires by rotation at the ensuing AGM and being eligible offers himself forre-appointment. The Board recommends the re-appointment of Mr. Murugappan as adirector liable to retire by rotation and the resolution in this regard forms partof the Notice of the 72nd AGM of the Company. Information as required to bedisclosed under regulation 36(3) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 (‘the SEBI Listing Regulations') for appointment /reappointment of directors is provided in the AGM Notice.

DECLARATION FROM INDEPENDENT DIRECTORS

The Independent Directors (‘IDs') Mr. Ashok Kumar Barat Mr. B Ramaratnam andMrs. Vasudha Sundararaman have submitted declarations stating that they meet the criteriaof independence as required under the provisions of section 149(6) of the Act andregulation 16(1)(b) of the SEBI Listing Regulations. In the opinion of the Board all theIDs possess integrity expertise and relevant experience in their respective fieldsincluding the proficiency required to effectively discharge their roles andresponsibilities in directing and guiding the affairs of the Company.

In terms of section 150 of the Act read with the Companies (Appointment &Qualification of Directors) Rules 2014 the IDs of the Company have registered theirnames in the independent directors' data bank created and maintained by the IndianInstitute of Corporate Affairs (‘IICA'). The IDs are also required to pass an onlineproficiency self-assessment test conducted by the IICA within a period of two years fromthe date of inclusion of their names in the data bank subject to exemption to individualswho fulfil the eligibility criteria prescribed under the said Rules. All the IDs are incompliant with the requirement under the said Rules.

KEY MANAGERIAL PERSONNEL

Pursuant to the provisions of section 203 of the Companies Act 2013 Mr. N GaneshManager & Chief Financial Officer and Mrs. E Krithika Company Secretary are the keymanagerial personnel of the Company and there were no changes during the year. At the 71stAGM held on August 12 2020 the members approved the reappointment of Mr. Ganesh as theManager for a further period of 3 years effective June 15 2020.

STATUTORY AUDITORS

Pursuant to the provisions of section 139(2) of the Act and the rules made thereunderM/s. S.R. Batliboi & Associates LLP Chartered Accountants were re-appointed as thestatutory auditors of the Company at the 71st AGM held on August 12 2020 fora second term of five years i.e. from the conclusion of the 71st AGM until theconclusion of the 76th AGM. The Auditors' Report is unmodified and does not contain anyqualifications reservations or adverse remark. The statutory auditors have not reportedany incident of fraud to the Audit Committee or the Board of Directors under section143(12) of the Act during the year.

RBI has issued guidelines on April 27 2021 for appointment of statutory auditors forBanks and NBFCs applicable from second half of FY 22 which inter-alia mandates tenure ofthe auditors for a continuous period of three years subject to satisfying the eligibilitynorms each year. The Company will be taking necessary steps to comply with the said RBIguidelines.

FINANCE

Deposits

The Company has not accepted any fixed deposits under Chapter V of the Companies Act2013 and as such no amount of principal and interest were outstanding as on March 312021.

Particulars of Loans Guarantees or Investments

The provisions of section 186 of the Act pertaining to investment and lendingactivities is not applicable to CFHL since the Company is an NBFC whose principal businessis acquisition of securities. Information regarding investments made during the year isgiven in the financial statements. During the year the Company has not given any loans orguarantees under the provisions of section 186 of the Act.

Internal Financial Control Systems with reference to the Financial Statements

The Company has in place adequate internal financial controls to ensure reliability offinancial and operational information and regulatory and statutory compliances.

The Company's business processes are equipped with monitoring and reporting processesto ensure financial discipline and accountability. The internal financial control systemsare monitored both by internal and statutory auditors of the Company. The statutoryauditors of the Company have also certified on the existence and operating effectivenessof the internal financial controls as on March 31 2021.

Financial Ratios

The Company being an investment company does not carry on any business other thanholding investments in its subsidiaries associates and joint venture. Dividend is theprimary source of income. Key ratios of the Company are given below.

Key Ratios 31-Mar-2021 31-Mar-2020
Return on Net Worth 1.90 7.45
Return on Total Assets 1.67 6.30
Debt Equity Ratio 0.13 0.18
Leverage Ratio 0.02 0.03
Ratio of Adjusted Net 626.01 478.51
Worth (ANW) to its aggregate risk weighted assets

The leverage ratio (regulatory maximum: 2.5 times) and adjusted net worth ratio(regulatory minimum: 30%) are computed in accordance with the RBI regulations.

Change in return on net worth as compared to the previous year is on account of lowerprofits due to lower dividend income and interest cost recognised on borrowings made forinvestment in subsidiary.

RISK MANAGEMENT

Managing risk is fundamental to any business in general and in particular to financialservices industry. CFHL has a risk management framework in place which provides anintegrated approach for identifying monitoring and mitigating risks associated with itsbusiness and that of its group companies. Risks arising out of NBFC insurance and riskmanagement businesses of the group companies are the dominant risks of the Company. Keyrisk exposures of CFHL include financial risks governance risks market risks reputationrisks and compliance risks. The Risk Management Committee (‘RMC') assists the Boardin monitoring various risks review and analysis of risk exposures and mitigation plansrelated to the Company and its group companies.

A Risk Management Policy has been adopted by the Board of Directors which inter aliasets out risk strategy approach and mitigation plans liquidity risk management and assetliability management.

The group companies have their own risk management framework in line with its strategicbusiness operations as appropriate to the industry in which they operate.

Risk management framework of NBFC and insurance businesses are broadly based on (a)clear understanding and identification of various risks (b) disciplined risk assessment byevaluating the probability and impact of each risk (c) measurement and monitoring of risksby establishing key risk indicators with thresholds for all critical risks and (d)adequate review mechanism to monitor and control risks. Business operations of each of thegroup companies the risks faced by them and the risk mitigation tools followed by themare reviewed periodically by the Risk Management Committees and the Boards of therespective group companies. CIFCL's risk management division works as a value center byconstantly engaging with the business and providing key insights into the portfolio basedon data driven analysis. The key risks faced by CIFCL are credit risk liquidity riskinterest rate risk operational risk reputational and regulatory risk which are broadlyclassified as credit risk market risk and operational risk. The in-house developed riskmonitoring tool of CIFCL measures the movement of critical risks. This provides the leveland direction of risks which are arrived at based on the two level risk thresholds forthe identified key risk indicators and are aligned to the overall company's risk appetiteframework approved by the Board.

The risk management framework of CMSGICL broadly comprises of establishment of riskmanagement policy risk register review of key risk exposures by the Risk ManagementCommittee of the Board and asset liability management. Key risk exposures of CMSGICLinclude financial risk credit risk market risk operational risk and compliance risk.CMSGICL's Enterprise Risk Management (‘ERM') function continually conducts risk andcontrol assessments for all functions across the Company.

During FY 21 the Risk Management Committee of CFHL's Board reviewed key risk exposuresof the Company and mitigations measures asset liability management and structuralliquidity management. The Board of CFHL annually reviews key risk exposures and mitigationmeasures of major business divisions viz. NBFC and general insurance businesses.

INTERNAL CONTROL SYSTEM

Internal control systems of an organisation is looked at as the key to its effectivefunctioning. The Company has internal control systems in place commensurate with thenature of business and size of its operations to ensure compliance with internalpolicies regulatory matters and to safeguard reliability of financial reporting and itsdisclosures. An audit of systems and processes is conducted by the internal auditor of theCompany and significant observations are reported to the Audit Committee every quarter.The Audit Committee evaluates adequacy and effectiveness of the internal controlsrecommends improvements and reviews the corrective action taken to address gaps if any.

CORPORATE GOVERNANCE

The Company firmly believes in committing itself to maintaining high standards ofcorporate governance. A report on corporate governance of the Company together with acertificate from the Auditors in accordance with the SEBI Listing Regulations is annexedto this Report as Annexure B. The Report further contains other details which arerequired to be provided in the Board's Report.

BOARD MEETINGS

Six meetings of the Board were held during the year ended March 31 2021. Furtherdetails on the Board meetings are disclosed in the Report on Corporate

Governance.

COMPOSITION OF THE AUDIT COMMITTEE

The Board has constituted an Audit Committee in terms of the applicable provisions ofthe Act the SEBI Listing Regulations and the Master Directions of RBI. Details of termsof reference composition and meetings of the committee are disclosed in the Report onCorporate Governance.

BOARD EVALUATION

Pursuant to the provisions of section 134 of the Act and regulation 17 of the SEBIListing Regulations the Board of Directors have carried out an annual performanceevaluation of the Board itself the individual directors various committees of the Boardand the Chairman for FY 20-21. The manner in which the evaluation has been carried out isprovided in the Report on Corporate Governance.

POLICY ON BOARD NOMINATION AND REMUNERATION

The Board has formulated a policy for selection and appointment of directors seniormanagement and their remuneration. Details of which are furnished in the Report onCorporate Governance.

CORPORATE SOCIAL RESPONSIBILITY ('CSR')

The Company being a part of the Murugappa Group is known for its tradition ofphilanthropy and community service. The Company's philosophy is to reach out to thecommunity through service-oriented philanthropic institutions in the fields of educationand healthcare.

In accordance with section 135 of the Act the Company has formulated a CSR policy.During the year the policy has been reviewed to align with the provisions of section 135of the Act amended vide the Companies (Amendment) Act 2020 and the Companies (CSR Policy)Amendment Rules 2021. The CSR policy is available on the Company's website at http://www.cholafhl.com/article/profile/967.

Pursuant to the aforesaid provisions the Company has spent Rs 18 Lakh towards CSRactivities approved by the Board during the year ended March 31 2021. An annual report onCSR activities has been appended as Annexure C to this Report.

RELATED PARTY TRANSACTIONS

All transactions that were entered into by the Company with related parties during thefinancial year were in the ordinary course of business and on an arm's length basis. Therewere no materially significant related party transactions during the year which hadpotential conflict with the interest of the Company at large. Pursuant to section134(3)(h) read with rule 8(2) of the Companies (Accounts) Rules 2014 there are notransactions to be reported under section 188(1) of the Act in form AOC-2.

Necessary disclosures in this regard have been made in the notes to the financialstatements. The Company has formulated a policy on related party transactions. None of theDirectors had any pecuniary relationships or transactions vis-a-vis the Company.

HUMAN RESOURCES AND PARTICULARS OF EMPLOYEES

Human resources('HR') are the valuable assets for the Company. CFHL along with itsgroup companies has a work force of more than 8600 employees as at March 31 2021.The companies have robust HR management practices enabling achievement of organizationalgoals and key milestones through people. Key HR initiatives implemented during the yearinclude wellness support program business continuity plan and strengthening &re-alignment of processes to adopt to a new normal. The companies continue to emphasize onresourcing and talent planning strategies based on their functional and general managementrequirements in preparing the organisation for the future.

As on March 31 2021 there were two employees on the rolls of CFHL. The informationrequired to be disclosed under the provisions of section 197 of the Act read with rule 5of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014 isappended as Annexure D to this Report.

EMPLOYEE STOCK OPTION (‘ESOP') SCHEMES

The Company's ESOP Schemes viz. Employee Stock Option Plan 2007 (‘ESOP 2007') andEmployee Stock Option Plan 2016 (‘ESOP 2016') have been approved by the shareholders.During the year there have been no fresh grants under both the schemes. Details in respectof ESOP 2007 and ESOP 2016 as required under the SEBI (Share Based Employee Benefits)Regulations 2014 are displayed on the Company's website athttp://www.cholafhl.com/article/investors/554. Both the schemes are in compliance with theSEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999and SEBI (Share Based Employee Benefits) Regulations 2014 respectively.

Vide the scheme of arrangement (demerger) employees of the Company were transferred tothe resulting company

Tube Investments of India Ltd. The stock options granted by the Company prior to theeffective date of demerger i.e. August 1 2017 continue to be held by the optiongrantees who are employees of the resulting company.

During the year upon exercise of vested stock options by the eligible option grantees1952 and 5000 equity shares were allotted under ESOP 2007 and ESOP 2016 schemesrespectively.

ENERGY CONSERVATION TECHNOLOGY

ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The Company has no activity relating to consumption of energy or technology absorptionetc. There was no foreign exchange earnings or outgo during the year.

WHISTLEBLOWER / VIGIL MECHANISM

In compliance with the provisions of section 177(9) of the Act read with the Companies(Meetings of Board and its Powers) Rules 2014 and regulation 22 of the SEBI ListingRegulations the Company has established a whistleblower / vigil mechanism which interalia facilitates its employees to report genuine concerns. The mechanism provides foradequate safeguards against victimisation of persons using the mechanism and makesprovision for direct access to the Chairman of the

Audit Committee in appropriate or exceptional cases.

The policy is available on the Company's website at http://www.cholafhl.com/article/investors/34.

PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE

Pursuant to the Sexual Harassment of Women at Workplace (Prevention Prohibition &Redressal) Act 2013 the Company has a policy for prevention of sexual harassment atworkplace. An internal complaints committee (‘ICC') is in place to redress complaintsreceived regarding sexual harassment. The policy extends to all employees (permanentcontractual temporary and trainees). During the year no referrals were received under thepolicy and no complaints were pending at the beginning of the year.

SECRETARIAL AUDIT

Pursuant to the provisions of section 204 of the Companies Act 2013 read with theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 andregulation 24A of the SEBI Listing Regulations and the rules made thereunder the Boardhad appointed M/s Srinidhi Sridharan & Associates Practicing Company Secretaries toconduct the secretarial audit for the year ended March 31 2021. The Report issued by thesecretarial auditor in the prescribed form MR-3 is annexed to this Report as Annexure E.

The secretarial audit report does not contain any qualifications reservations oradverse remarks by the secretarial auditor.

COST RECORD AND COST AUDIT

Maintenance of cost records and requirements of cost audit as prescribed under theprovisions of section 148(1) of the Act is not applicable to the Company.

ANNUAL RETURN

Pursuant to the provisions of section 92(3) and section 134(3)(a) of the Companies Act2013 the annual return for the year ended March 31 2021 is available on theCompany's website at http://www.cholafhl.com/article/subsidyfinancials/400.

COMPLIANCE WITH SECRETARIAL STANDARDS

CFHL has complied with the Secretarial Standards on Meetings of the Board of Directors(SS-1) and Secretarial Standards on General Meetings (SS-2) issued by the Institute ofCompany Secretaries of India.

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY

There are no material changes and commitments affecting the financial position of theCompany which have occurred between March 31 2021 and the date of this Report.

BUSINESS RESPONSIBILITY REPORT

The Company abides by a set of enduring values and beliefs called the ‘fivelights' viz. the lights of integrity passion quality respect and responsibility inorder to be a socially responsible business which would on a continuous basis enhancethe interests of all its stakeholders. By steadfastly upholding the principles of good androbust corporate governance ingrained with discipline accountability transparency andfairness the Company constantly endeavors to sustain and enhance itself as a responsiblecorporate citizen.

In terms of regulation 34(2) of the SEBI Listing Regulations a Business ResponsibilityReport in the prescribed form is annexed to this Report as Annexure F.

DIRECTORS' RESPONSIBILITY STATEMENT

The Board of Directors confirm that the Company has in place a framework of internalfinancial control and compliance system which is monitored and reviewed by the AuditCommittee and the Board besides the statutory internal and secretarial auditors.Further pursuant to section 134(5) of the Companies Act 2013 the Board of Directorsconfirm that: a) in the preparation of the annual financial statements for the year endedMarch 31 2021 the applicable accounting standards have been followed and that there wereno material departures therefrom; b) they have in the selection of the accountingpolicies consulted the statutory auditors and have applied their recommendationsconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as at March 31 2021 andof the profit of the Company for the year ended on that date; c) they have taken properand sufficient care for the maintenance of adequate accounting records in accordance withthe provisions of the Companies Act 2013 for safeguarding the assets of the Company andfor preventing and detecting fraud and other irregularities; d) they have prepared theannual financial statements on a going concern basis; e) they have laid down internalfinancial controls to be followed by the Company and that such internal financial controlsare adequate and were operating effectively during the year ended March 31 2021; and f)proper system has been devised to ensure compliance with the provisions of all applicablelaws and that such systems were adequate and operating effectively during the year endedMarch 31 2021.

DECLARATIONS / AFFIRMATIONS

There were no significant material orders passed by the regulators or courts ortribunals impacting the Company's going concern status and its operations in future.

The Company does not carry on any activities other than those specifically permitted bythe RBI for CICs.

RBI does not accept any responsibility or guarantee about the present position as tothe financial soundness of the Company or the correctness of any of the statements orrepresentations made or opinions expressed by the Company and for discharge of anyliability by the Company.

Neither there is any provision in law to keep nor does the Company keep any part ofthe deposits with RBI and by issuing a Certificate of Registration to the Company RBIneither accepts any responsibility nor guarantees the payment of deposits to any depositoror any person who has lent any sum to the Company.

There are no applications made or any proceedings pending under the Insolvency andBankruptcy Code 2016 during the year.

• During the year the Company had not made any one-time settlement with banks orfinancial institutions.

ACKNOWLEDGEMENT

The Directors express their gratitude for the support and co-operation extended by theMinistry of Corporate Affairs Securities and Exchange Board of India Reserve Bank ofIndia Stock Exchanges and other statutory authorities. The Directors also wish to thankall investors vendors financial institutions banks and joint venture partners for theircontinued support and faith reposed in the Company. The Board places on record itsappreciation for the contribution made by the employees of the Company and its groupcompanies across all levels.

On behalf of the Board
Place : Chennai M M Murugappan
Date : May 14 2021 Chairman

.