ti financial holdings ltd Directors report

Dear Shareholders,

The Directors take pleasure in presenting the 73^rd Annual Report together with the audited financial statements of the Company for the financial year (‘FY?) ended March 31, 2022.

COMPANY OVERVIEW

Cholamandalam Financial Holdings Limited (‘CFHL?) is registered as a Non-Deposit taking Systemically Important Core Investment Company (‘CIC?) pursuant to the receipt of Certificate of Registration dated January 6, 2020 issued by the Reserve Bank of India (‘RBI) under section 45-IA of the Reserve Bank of India Act, 1934. CFHL holds substantial investments in the following financial services / risk management companies of the Murugappa Group (hereinafter collectively referred as ‘group companies?) and serves large number of customers by providing loans for asset acquisition through financing, asset and family protection through general insurance and risk management services.

• Cholamandalam Investment and Finance Company Limited (‘CIFCL?), engaged in non-banking finance company business;

• Cholamandalam MS General Insurance Company Limited (‘CMSGICL?), engaged in general insurance business;

• Cholamandalam MS Risk Services Limited (‘CMSRSL?) engaged in risk management and engineering solutions business.

STANDALONE FINANCIAL RESULTS

(Rs in Crore)

Particulars	2021-22	2020-21
Total Income	83.51	58.14
Total Expenses	12.77	24.24
Profit Before Tax	70.74	33.90
Tax Expense	15.23	12.19
Profit for the year	55.51	21.71
Other Comprehensive Income	0.58	0.53
Total Comprehensive Income	56.09	22.24

SHARE CAPITAL

The paid-up equity share capital of CFHL as on March 31, 2022 was Rs18.77 Crore. During FY 22, 19,910 equity shares were allotted upon exercise of vested stock options by eligible option grantees under the Company?s Employees Stock Option Schemes 2007 and 2016.

DIVIDEND

The Board of Directors have recommended a dividend at the rate of 55% i.e., Rs0.55 per equity share of face value of Rs1/- each for the year ended March 31, 2022.

APPROPRIATIONS

The Company has transferred a sum of Rs11.11 Crore (previous year: Rs4.35 Crore) to Special Reserve under section 45-IC of the Reserve Bank of India Act, 1934.

MACRO ECONOMIC ENVIRONMENT

The financial year 2022 began with the impact from the COVID second wave creating havoc for India and the world, ushering in newer challenges across sectors. However, a rapid vaccination coverage, positive business environment paired with government support provided a strong momentum for a sustained economic recovery. The onset of the third wave, which was seen in the latter part of the year was quite brief and had a muted impact on the economy than the earlier two waves. The second half of the year gradually picked up with progress in consumption, investment, capacity utilisation, among others. Key macroeconomic parameters including GST collections, digital transactions, FASTag revenues, demand for electricity, metals and coal production demonstrated a positive trajectory. The country continues to remain one among the fastest growing economies with its GDP expected to grow around 9.2% in FY 22. Turning to the sectoral aspects, growth in agriculture and allied activities is estimated at 3.3% backed by a normal monsoon. After a contraction in the previous fiscal year the manufacturing sector is expected to expand by 12% while the services sector is projected to grow by 8.2% in FY 22 following a decline of 8.4% last year. Contact intensive segments such as trade, hotels, transport and communication though yet to fully recover is likely to expand 11.6% in FY 22. Private consumption improved to recover significantly from the second half of the year. The RBI?s Monetary Policy maintained an accommodative stance and continues to support the economy?s expansion.

The Union Budget for FY 2022-23 laid emphasis to strengthen the infrastructure with its focus on key priorities including Productivity Enhancement, Financing Investments and GatiShakti Plan. The GatiShakti National Masterplan for seamless multi-modal connectivity continues to be the focus area for augmenting transportation and logistics infrastructure. Government?s initiatives on driving Public Private Partnership (PPP) projects and extension of Production Linked Incentive (PLI) schemes to new sectors is expected to drive growth in domestic manufacturing and create more jobs. Globally, as the economy was gradually recovering from the effects of the pandemic and several economies returning to their pre-covid levels, another shock struck. The ongoing conflict between the Russia and Ukraine since late February 2022 triggered a humanitarian crisis. Headwinds consequent to the war include high commodity prices, especially energy, metals, and some food and agricultural products, tightened fiscal conditions, trade and supply chain disruptions and lower private sector confidence. These disruptions pose risk of elevated inflation for businesses and consumers across the world, urging continued tightening of monetary and fiscal policies. Furthermore, frequent and wider-ranging lockdowns in China have impacted economic activity creating new bottlenecks in global supply chains. Overall risks to economic prospects have risen sharply and policy trade-offs have become ever more challenging. As per the IMF, global growth prospects are expected to slow down to 3.6% in 2022 after a projected expansion of 6.1% in 2021.

Consequent to the evolving geopolitical situation and India?s dependence on crude oil, natural gas, and other commodities, a spike in inflation and in the current account deficit are aspects to be kept under watch. Exports that were providing a cushion to the loss of domestic output are likely to be subdued as the developed countries are also witnessing a slowdown. Foreign direct investment inflow could moderate amid contraction of global economic and financial conditions. Outlook for the domestic economy remains positive for FY 23 backed by normal monsoon and high public investment though uncertainty prevails from the ongoing global conditions, potential new wave of COVID and sharp rise in commodity prices. Amidst volatile economic conditons, Indias GDP is projected to grow over 8% in FY 23.

BUSINESS ENVIRONMENT

CFHL earns revenue primarily by way of dividend income from investments held in group companies. An overview of the financial services sector in which the Company operates along with a business update of group companies during FY 22 is summarised in the following paragraphs.

NBFC Industry & Business Update

India?s financial sector is a highly diversified one comprising commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The sector dominated by banking and non banking financial companies (‘NBFCs?) have witnessed exponential growth in the last decade driven largely by regulatory reforms and their ability to cater to unbanked areas through innovative products and service delivery mechanisms. However, in the past few years the sector was dealing with the contagion effects associated with the collapse of a few NBFCs and co-operative banks followed by the onset of COVID-19 pandemic in the early 2020. Various policy initiatives of the Government and the regulator have helped NBFCs to navigate through the challenges in terms of liquidity, provisioning and asset management. As economic activities gathered momentum post relaxation of pandemic restrictions, the sector rebounded from second quarter of the fiscal year 2022 posting a significant growth. With an aim to strengthen supervision of NBFCs, RBI introduced various regulations and guidelines during the year, such as: a) scale based regulations to provide enhanced regulatory standards based on the size and activities of NBFCs b) prompt corrective action framework for timely regulatory intervention which require NBFCs to initiate and implement remedial measures so as to restore its financial health c) revised norms for income recognition, asset classification and provisioning, to ensure uniformity among lending institutions. Though these regulatory changes are expected improve overall governance standards of NBFCs in the long term, the sector might face some headwinds in the short term.

Cholamandalam Investment and Finance Company Limited (‘CIFCL?), an NBFC incorporated in 1978, is one of the leading, comprehensive financial service provider offering vehicle finance, home loans, loan against property etc., to a wide range of customers.

Vehicle Finance (‘VF?)

CIFCL?s Vehicle Finance business comprising of diversified portfolio viz., commercial vehicles, passenger vehicles and used vehicles, continues to be the major segment contributing 69% of its aggregate assets under management (‘AUM?) as at March 31, 2022.

Commercial vehicles and passenger vehicles registered double digit growth in FY 22 after two years of continuous de-growth backed by improvement in economic activity, revival of construction / mining activities and improvement in semiconductor supplies towards the end of the year. The domestic commercial vehicle industry grew by 26% in FY 22, supported by a low base and improvement in economic activity. The commercial vehicle industry is expected to deliver double digit growth in FY 23 driven by freight demand, replacement demand, structural economic recovery and higher infra spends by the government. However, inflation in fuel prices and its impact on viability of fleet operators will remain a key challenge in FY 23. The domestic car and utility vehicle industry had witnessed a 14% growth in FY 22 aided by improvement in semiconductor supplies towards the end of the year and improvement in sale of utility vehicles due to shift in customer preferences. A gradual recovery in two-wheeler demand is expected in FY 23 with a decent growth year on year considering a low base. Tractor industry had witnessed a de-growth of 6% in FY 22 attributable to the huge volumes in FY 21 which was the ever all-time high for tractor sales in India. Tractor volumes might show minimal growth in FY 23 given the high base and moderation in demand. After strong volume upsurge in H1 of FY 22, the volumes in construction equipment moderated significantly during the second half and had a de-growth of around 8%. Major factors that contributed to the de-growth were increasing cost of equipment prices, muted rentals and monsoon related impediments which impacted the road and construction sector. With higher allocation to infra sector in the union budget and restoration of normalcy in mining and construction activity the construction industry is expected to grow in FY 23.

The Vehicle Finance business disbursed Rs25,439 Crore during FY 22 as against Rs20,249 Crore in the previous year registering a growth of 26% and profits before tax (‘PBT?) during the year was Rs2,054 Crore as against Rs1,287 Crore in the previous year. The VF business continued its focus on maintaining asset quality through a co-ordinated collection strategy, which helped in restricting gross stage 3 assets to 3.9% inspite of the second COVID wave in Q1 which had a severe impact on customer cash flows. The company has designed a multi-pronged long-term strategy to minimize the cost of operations and credit losses, to maximize ROA and customer experience. Operating model enhancements have been prioritized and implemented at product level. The business has a robust collection mechanism in place aided with a strong credit risk assessment framework which will help in steering through any strong currents in the market.

Loan against Property (‘LAP?)

In FY 22 growth rate in LAP segment was higher than non-LAP segment (secured non-LAP and unsecured) as non-banks preferred mortgage-based lending over cash-flow-based lending in the short-run given the potential risks in other segments. LAP segment is expected to perform better in FY 23 with improvement in economy and lenders being positive towards mortgage-based lending.

The focus of CIFCL?s LAP in FY 22 was to stabilize collections, scale up disbursements, get systems and processes equipped to handle COVID induced challenges. The business continues to focus on a systematic approach to build a healthy portfolio mix, with more than 80% of portfolio as self-occupied residential properties (SORP) and an average loan ticket size of less than Rs45 Lakh. The business had started exceeding pre-COVID level of monthly disbursements with adequate branch expansion while strengthening credit policy in tune with market developments.

Assets Under Management (AUM) for the business grew by 16% to Rs17,115 Crore (previous year: Rs14,777 Crore) and disbursements registered a growth of 62% to Rs5,862 Crore (previous year: Rs3,627 Crore).

Home Loans (HL)

The Indian Housing Finance market grew around 9~11% in FY 22. Q1 was significantly impacted by the second wave of COVID-19 and its impact was felt through subsequent quarters. In terms of ticket size, the <25 lakhs segment contributes more than 43% of the mortgage outstanding. Housing sector is expected to grow 10~12% in FY 23 and affordable housing to grow 7~9% in the same period. Regulatory and fiscal environment remains conducive for the demand in affordable housing segment.

As on March 31, 2022, the HL business had 43,056 live accounts (25% growth Y-o-Y) with an AUM of Rs5,269 Crore (21% growth Y-o-Y). 89% of this portfolio is in Tier II, III, IV cities and towns. The disbursements grew by 2% Y-o-Y from Rs1,542 Crore in FY 21 to Rs1,571 Crore in FY 22. Lower Middle-Income-Group customers continue to be the target group for HL business. CIFCL?s HL business has built on inherent strength in lending to the lower middle income (LMI) segment with a customized eligibility program for business owners and salaried customers. Lending for self construction, remains a strong focus with significant proportion of the portfolio and fresh disbursements sourced from this segment.

New Business

CIFCL launched new businesses during the year viz.,Consumer & Small Enterprise Loan (‘CSEL?) and Secured Business & Personal Loan (‘SBPL?) alongwith Small and Medium Enterprise Loans business. CSEL offers personal loans, professional loans and business loans to salaried, self-employed professionals and micro & small businesses spread across 50 locations and have acquired over 1.3 Lakh customers in Q4 of FY 22. The business growth is both through traditional and partnerships with Fin-techs. SBPL offers secured business loan with self-occupied residential property or commercial cum-residential property as collateral, launched in 50 locations with initial focus on South and West Markets. In SME business, the product suite includes supply chain financing, term loans for capex, loan against shares, funding on hypothecation of machinery for specific industries. Business AUM sourced through new businesses aggregates to Rs1,642 Crore and disbursements was Rs2,618 Crore for FY 22.

New Acquisitions

During the year, CIFCL invested Rs450 Crore and acquired 73.8% stake in Payswiff Technologies Private Limited (Payswiff) and invested Rs9.75 Crore and acquired 16.29% stake in Paytail Commerce Private Limited (Paytail). Payswiff is engaged in the business of enabling online payment gateway services for e-commerce businesses and provides e-commerce solutions. Payswiff is an omni channel payment transaction solution that lets business owners accept payments from their customers in-store, at home deliveries, online and on-the-go using mPOS and POS solutions. Paytail is a new age fintech company focusing on offline ‘Buy Now Pay Later? through brand partnerships.

Other functions

Automation continues to be a key initiative and technology tools are deployed for automation of repetitive activities across functions wherever opportunity exists. During the year CIFCL upgraded its system with a host of integrations to reduce physical touch-point with stakeholders. Online payment modes for collections have been introduced to provide customers with multiple payment options. For vendors, online portals have been introduced to liaise and share documents with the business.

Outlook

Industry outlook across all business segments is positive and CIFCL will look to scale up disbursements by expanding into new geography/customer segments, driving market share growth through OEM/dealer tie-ups, co-lending partnerships, improving internal efficiencies through digital initiatives. Strong collection infrastructure is driven by experienced field teams with product level focus from early buckets. The company is running host of initiatives to digitize the collection processes which will help strengthen the asset quality position back to pre-covid levels.

General Insurance Industry & Business Update

Financial year 2021-22 was a mixed one for the non-life insurance industry. Following the impact from COVID second wave, the industry evidenced a phase of recovery only to be beset with challenges of heightened competitive intensity, chip shortages in the four-wheeler segment and weak customer demand in the two-wheeler segment. The general insurance industry grew around 8.8% in FY 22 and achieved a gross written premium (GWP) of Rs1,848 billion. The market share of public sector companies was 40.7% with the private sector companies growing their share to 59.3%. Amongst the other lines of insurance businesses, motor insurance registered a muted growth of 4% while the fire insurance business grew by 7%. Growth in the health insurance segment was higher in the backdrop of group and Government health business.

Cholamandalam MS General Insurance Company Limited (CMSGICL), the insurance subsidiary of CFHL, is registered with the Insurance Regulatory and Development Authority of India (‘IRDA?) to carry on general insurance business. CMSGICL offers a wide range of insurance including motor, travel, health, accident, home and other types of insurance for corporate customers.

In a highly competitive business environment, CMSGICL ranks 8^th position among private insurers with a market share of 2.6% (among general insurers).

CMSGICL recorded a GWP of Rs5,194 Crore (previous year: Rs4,705 Crore) for the year ended March 31, 2022. The GWP growth was largely driven by its thrust in adding new channel partners, entry into large motor OEM programs and growth in commercial lines. Digital business grew well to contribute 2% of the top line. The company grew its business operations by welcoming over 10 million customers across its product categories. CMSGICL continues to lead the industry in motor OD loss ratios and to secure higher levels of compromise settlements in motor third party claims. In FY 22, the company serviced over 4.7 Lakh claims across various lines of business, which is 52% more than the previous fiscal year.

Motor Insurance

Motor insurance business registered a higher than industry growth at 9.7% during the year. The company stepped up its renewal ratio in the cars portfolio even as the pandemic impacted the renewal ratio in commercial vehicles. The premium pricing in motor own-damage (‘OD?) witnessed severe pressure with discounts across vehicle categories rising to new highs. This has caused an adverse change in the motor OD claims ratios of all players in the industry. In motor third party, the absence of hike in third party premium was extended for the second year due to the pandemic. The company continues to exercise utmost care in its choice of sub-segments, geographies has been rated high by its channel partners and customers for its claims servicing processes.

Property and Casualty Insurance

Growth in premium from commercial lines of business was mainly driven by the 11% growth in fire insurance portfolio. Marine and engineering lines of businesses also witnessed improved performance with increase in the levels of economic activity. Miscellaneous lines grew well during the year. CMSGICL continues to follow disciplined underwriting and prudent risk selection in the highly demanding environment.

Health, Accident and Travel Insurance

During the year, health, accident and travel insurance business grew marginally with stronger growth registered in the last quarter. While the growth in retail indemnity policies was strong, the bancassurance led bundled product sales in personal accident and health benefit policies suffered a drop as a fall out of the pandemic and reduced lending by financiers.

The second wave of the pandemic impacted heavily with CMSGICL settling over 58,000 COVID health claims aggregating to Rs277 Crore during the year. The company continues to strengthen its underwriting framework with intelligent use of technology for its risk selection, upsell and cross-sell initiatives.

Other functions

FY 22 witnessed claims management function stepping up speed of disposal while handling larger volumes with efficiency and productivity. Besides digitisation of its claims processes across lines of businesses, CMSGICL continues to focus on harnessing efficiencies for severity control across all lines, automation for speed and operational controls, proactive approach to servicing for building transparency and satisfaction levels of customers.

The company implemented several new tech platforms and IT initiatives including digital integration with channel partners such as OEMs, bancassurance partners, digital partners etc. for seamless issuance of policies, a fully digitized platform for on-boarding of POSP agents, introduction of robotics process automation in claims and finance functions, AI powered chat-bot enabled on corporate website to benefit customer self-service etc.

Outlook

The general insurance industry which has displayed good resilience during the two years ravaged by the pandemic expects to grow strongly in FY 23. Headwinds for the industry include the micro-chip shortage induced lower automobile sales, higher inflation impacting consumer spends while the tailwinds are the enhanced level of awareness towards health insurance, newer products in the market, the infrastructure spend thrust from the Government, expected credit offtake from banks etc. The imminent rise in interest rates in the economy will augment the investment income for all players in the industry.

CMSGICL will continue its focus to add channel partners, expand geographically into new markets, enhance its focus on renewals besides launching new products across lines of businesses. The company will tighten its expenses of management and related processes by its thrust on productivity and efficiency improvements.

Risk Management Solutions - Business Update

Cholamandalam MS Risk Services Limited (CMSRSL), is engaged in providing risk management and engineering solutions in the field of safety, health and environment, in association with CMSGICL. Although the first quarter was impacted by the second wave of COVID, the business divisions ramped up in the subsequent quarters and met the targets set for FY 22. The business is backed by a strong technical team of multidisciplinary & certified professionals having exposure to domestic and international markets. During the year, the company continued to extend digitalisation in its offering?s by adding Virtual DMC v.02, gamification in PSM Studies, introducing "SHE Genie" for Construction safety application and automating checklist-based audit reports. The launch of scaffolding inspector training in collaboration with STI Texas was another key milestone achieved during the year. CMSRSL expanded its presence to around 54 locations across the country including resources deployed at various client project sites. More than 350 assignments in process safety, 150 plus assignments in electrical and more than 75 projects environment were carried out successfully during the year. The company further strengthened its Order book with new orders aggregating to Rs57 Crore. CMSRSL continues to offer services to CMSGICL and its clients through value-added offerings like thermography, safety audits and cargo loss minimization studies.

FY 23 began with a strong open order book of Rs41 Crore. Business is looking forward to increase the existing client base with a focused marketing and branding strategy in domestic market. Key Initiatives planned for FY 23 include addition of new services, focusing emerging sectors and strengthening execution excellence. Other key initiatives include participating in standards formulation / seminars and industrial trade events and meeting key clients besides rolling out of a structural and future focused competency building program across all verticals.

FINANCIAL REVIEW - SUBSIDIARY / ASSOCIATE / JOINT VENTURE COMPANIES

CFHL earned an income of Rs83.51 Crore (previous year: Rs58.14 Crore) a growth of 43% and profit before tax was Rs70.74 Crore (previous year: Rs33.90 Crore) for the financial year ended March 31, 2022 registering a growth of 109%. Aggregate investments stood at Rs1,279.84 Crore (previous year: Rs1,279.22 Crore) as on March 31, 2022. During the year, the Company repaid Rs50 Crore of Non-Convertible Debentures (‘NCDs?) and the outstanding NCDs as on March 31, 2022 was Rs100 Crore.

Credit Rating

During the year, India Ratings and Research Private Limited has affirmed a rating of IND AA+/Stable for the debt instruments of the Company.

Cholamandalam Investment and Finance Company Limited (CIFCL)

The Company holds 45.41% in the paid-up equity share capital of CIFCL as on March 31, 2022 and has de-facto control as per the principles of Ind AS 110 and accordingly CIFCL has been considered as a subsidiary, for consolidation purposes. Securities of CIFCL are listed and traded on the National Stock Exchange of India Limited (NSE) and the BSE Limited (BSE).

Business Assets under Management (AUM) grew by 10% to Rs76,907 Crore as at March 31, 2022 (previous year: Rs69,996 Crore). Loan disbursements aggregated to Rs35,490 Crore (previous year: Rs26,043 Crore) registering a growth of 36% during the year. Profit after tax grew by 42% to Rs2,147 Crore (previous year: Rs1,515 Crore). Investment portfolio of CIFCL as at end of FY 22 was Rs2,076 Crore including investments in government securities of Rs1,543 Crore. As per RBI mandate, CIFCL adopted tighter provisioning norms on its NPA and held a management overlay of Rs500 Crore as at March 31, 2022. The company maintained a comfortable ALM position with no negative cumulative mismatches across all time buckets. As at end of FY 22, the capital adequacy ratio stood at 19.6% as against the minimum regulatory requirement of 15%. During the year, CIFCL raised CP of Rs5,550 Crore of which Rs2,750 Crore were repaid. Outstanding NCDs stood at Rs10,252 Crore and Tier II borrowings stood at Rs3,734 Crore as on March 31, 2022. CIFCL paid an interim dividend of Rs1.30/- (65%) per equity share of face value of Rs2/- each for FY 22. The Board of CIFCL has recommended a final dividend of Rs0.70/- (35%) per equity share for FY 22, subject to their shareholders? approval.

CIFCL?s subsidiary companies are Cholamandalam Securities Limited (CSEC), Cholamandalam Home Finance Limited (CHFL) and Payswiff Technologies Private Limited (Payswiff). CSEC is engaged in stock broking and investment advisory services. CSEC focused on creating three distinct business lines for enhancing revenues and productivity - broking, wealth and insurance distribution. During the year, the company increased its footprint from 22 branches to 34 branches. CSEC achieved a gross income of Rs40.01 Crore (previous year: Rs30.14 Crore) and profit before tax of Rs7.48 Crore (previous year: Rs6.84 Crore) for the year ended March 31, 2022 and the mutual fund AUM was Rs839 Crore as at March 31, 2022.

CHFL recorded a gross income of 56.37 Crore (previous year: Rs37.15 Crore) and made a profit before tax of Rs9.19 Crore (previous year: Rs2.62 Crore) for the year ended March 31, 2022. Currently, the company continues its focus on growing insurance corporate agency business. Payswiff recorded a gross income of Rs284.60 Crore and made a loss of Rs33.78 Crore for the year ended March 31, 2022. Payswiff Solutions Private Limited and Payswiff Services Private Limited are subsidiaries of Payswiff. The associate companies of CIFCL are White Data Systems Private Limited, Vishvakarma Payments Private Limited and Paytail Commerce Private Limited.

Cholamandalam MS General Insurance Company Limited (CMSGICL)

The Company holds 60% in the paid-up equity share capital of CMSGICL a joint venture with Mitsui Sumitomo Insurance Company Ltd., Japan and is a material subsidiary of the Company. The IRDAI has deferred the implementation of Ind-AS for insurance companies. Therefore, financials of CMSGICL have been restated as per Ind-AS for consolidation purposes and figures of CMSGICL reported in this annual report are under Ind-AS. CMSGICL achieved a gross written premium of Rs5,194 Crore during FY 22 (previous year: Rs4,705 Crore) and the profit before tax was Rs140 Crore (previous year: Rs367 Crore). During the year IRDAI withdrew its earlier permission on accounting treatment of sourcing costs on long term policies and directed the Company to absorb all costs relating to sourcing of business upfront. CMSGICL was further directed to absorb the carried forward pre-payments fully. The financial impact of the direction aggregated to Rs327 Crore. The investment portfolio of CMSGICL grew to Rs11,356 Crore as at March 31, 2022 (previous year: Rs10,262 Crore). In the context of the pandemic environment and with interest rates rendered higher in first few months of the year, the company churned and deployed its investments largely in central and state government securities and pared down exposures to corporate bonds. Investments of CMSGICL in government securities stood at 74.91% of the investment assets (previous year: 74.91%). Solvency ratio of CMSGICL as on March 31, 2022 was 1.95 times as against the minimum regulatory requirment of 1.50 times.

With a view to conserve its resources and augment solvency ratio, the Board of CMSGICL has not recommended dividend for FY 22.

Cholamandalam MS Risk Services Limited (CMSRSL)

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

CMSRSL achieved an income of Rs59.69 Crore (previous year: Rs43.59 Crore) and profit before tax of Rs7.15 Crore (previous year: Rs2.64 Crore) for the year ended March 31, 2022. The Board of CMSRSL recommended a dividend at the rate of 25% i.e., Rs2.50/- per equity share of face value of Rs10/- each for FY 22.

CONSOLIDATED FINANCIAL RESULTS

(Rs in Crore)

Particulars	2021-22	2020-21
Total Income	14,734.98	13,960.84
Total Expenses	11,691.42	11,560.56
Profit Before Tax of Profits from Associate / Joint Venture and Tax	3,043.56	2,400.28
Share of Profit from Associates /Joint Venture (Net of Taxes)	(2.87)	0.32
Profits Before Tax	3,040.69	2,400.60
Tax Expense	(801.33)	(636.38)
Profits for the year	2,239.36	1,764.22
Minority Interest	(1,216.29)	(939.58)
Net Profit for the year attributable to owners of the Company	1,023.07	824.64

BUSINESS REVIEW - SUBSIDIARY, ASSOCIATE AND JOINT VENTURE COMPANIES

Cholamandalam MS General Insurance Company Limited is the subsidiary company of CFHL. Under Ind-AS, Cholamandalam Investment and Finance Company Limited is considered as a subsidiary and Cholamandalam MS Risk Services Limited is the joint venture company of CFHL. There has been no change in the nature of business of these companies during the year. Business performance of these companies has been furnished in earlier paragraphs of this report.

A report on the performance and financial position of each of the aforesaid companies as per section 129(3) of the Act read with the Companies (Accounts) Rules, 2014, in the prescribed form AOC-1 is annexed to this Report as Annexure I. Consolidated financial 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 be posted on the Company?s website, www.cholafhl.com. Annual accounts of the subsidiary companies will also be posted on the Company?s website and be made available for inspection by shareholders through electronic mode until the date of the Annual General Meeting (AGM).

DIRECTORS

At the 72^nd AGM held on August 4, 2021 the appointment of Mr. Vellayan Subbiah as a Non-Executive Director of the Company was approved. Mr. Ashok Kumar Barat, Independent Director resigned from the Board on December 21, 2021. The Board places on record its appreciation for the contribution rendered by Mr. Barat during his tenure on the Board.

Based on the recommendation of the Nomination & Remuneration Committee of the Board, Mr. K Balasubramanian (DIN: 00137260) has been appointed as an additional director in the category of an independent director with effect from March 17, 2022. Pursuant to section 149 and regulation 17(1C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘the SEBI Listing Regulations?), the Company has sought shareholders? approval by way of special resolution through postal ballot for appointment of Mr. K Balasubramanian as an independent director for a term of three (3) consecutive years with effect from March 17, 2022 till March 16, 2025. The result of the postal ballot shall be announced on or before May 19, 2022.

As per the provisions of section 152 of the Act, Mr. Sridharan Rangarajan (DIN: 01814413) retires by rotation at the ensuing AGM and being eligible offered himself for re-appointment. The Board recommends the re-appointment of Mr. Rangarajan as a director liable to retire by rotation and the resolution in this regard forms part of the Notice of the 73^rd AGM of the Company. Information as required to be disclosed under regulation 36(3) of the SEBI Listing Regulations, for re-appointment of director is provided in the AGM Notice.

DECLARATION FROM INDEPENDENT DIRECTORS

The Independent Directors (‘IDs?), Mr. B Ramaratnam, Mrs. Vasudha Sundararaman and Mr. K Balasubramanian have submitted declarations stating that they meet the criteria of independence as required under the provisions of section 149(6) of the Act and regulation 16(1)(b) of the SEBI Listing Regulations. In the opinion of the Board, all the IDs possess integrity, expertise and relevant experience in their respective fields including the proficiency required to effectively discharge their roles and responsibilities 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 their names in the independent directors? data bank created and maintained by the Indian Institute of Corporate Affairs (‘IICA?). The IDs are also required to pass an online proficiency self-assessment test conducted by the IICA within a period of two years from the date of inclusion of their names in the data bank, subject to exemption to individuals who fulfill the eligibility criteria prescribed under the said Rules. All the IDs are compliant with the requirement under the said Rules.

KEY MANAGERIAL PERSONNEL

Pursuant to the provisions of section 203 of the Act, Mr. N Ganesh, Manager & Chief Financial Officer and Mrs. E Krithika, Company Secretary are the key managerial personnel of the Company and there were no changes during the year.

STATUTORY AUDITORS

Pursuant to the provisions of section 139(2) of the Act and the rules made thereunder and the guidelines for appointment of statutory auditors for Banks and NBFCs dated April 17, 2021 issued by the RBI, M/s. Sharp & Tannan Associates (S&T Associates), Chartered Accountants, were appointed as the statutory auditors of the Company at the 72^nd AGM held on August 4, 2021, for a period of three years commencing from the conclusion of the 72^nd AGM until the conclusion of the 75^th AGM. The Auditors? Report issued by S&T Associates for the year under review is unmodified and does not contain any qualification, reservation, or adverse remark. The statutory auditors have not reported any incident of fraud to the Audit Committee or the Board of Directors under section 143(12) of the Act during the year.

FINANCE Deposits

The Company has not accepted any fixed deposits under Chapter V of the Companies Act, 2013 and as such no amount of principal and interest were outstanding as on March 31, 2022.

Particulars of Loans, Guarantees or Investments

The provisions of section 186 of the Act pertaining to investment and lending activities is not applicable to CFHL since the Company is an NBFC whose principal business is acquisition of securities. Information regarding investments made during the year is given in the financial statements. During the year the Company has not given any loans or guarantees 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 of financial and operational information and regulatory and statutory compliances. The Company?s business processes are equipped with monitoring and reporting processes to ensure financial discipline and accountability. The internal financial control systems are monitored both by internal and statutory auditors of the Company. The statutory auditors of the Company have also certified on the existence and operating effectiveness of the internal financial controls as on March 31, 2022.

Financial Ratios

The Company being an investment company does not carry on any business other than holding investments in its group companies. Dividend is the primary source of income. Key ratios of the Company are given in the table below:

Ratio Description	31-Mar-2022	31-Mar-2021
Return on Net Worth	4.68%	1.90%
Return on Total Assets	4.30%	1.67%
Debt Equity Ratio (No. of times)	0.08	0.13
Leverage Ratio (No. of times)	0.01	0.02
Ratio of Adjusted Net Worth (ANW) to its aggregate risk weighted assets	942.78%	626.00%

Dividend income is higher by 53.7% in FY 22 compared to the previous year. Consequently, there is improvement in the return on networth and return on total assets. The Company redeemed NCDs aggregating to Rs50 Crore during the year. Therefore there is a decrease in debt equity ratio and leverage ratio. Increase in adjusted networth is on account of increase in unrealised gains on investment in subsidiaries. The leverage ratio (maximum regulatory requirement: 2.5 times) and adjusted net worth ratio (minimum regulatory requirement: 30%) are computed in accordance with the Master Directions

- Core Investment Companies (Reserve Bank) Directions, 2016 (Master Directions of RBI).

RISK MANAGEMENT

Managing risk is fundamental to any business in general, and in particular to financial services industry. CFHL has a risk management framework in place which provides an integrated approach for identifying, monitoring and mitigating risks associated with its business and that of its group companies. Risks arising out of NBFC, insurance and risk management businesses of the group companies are the dominant risks of the Company. Key risk exposures of CFHL include financial risks, governance risks, market risks, reputation risks and compliance risks. The Risk Management Committee (‘RMC?) assists the Board in monitoring various risks, review and analysis of risk exposures and mitigation plans related to the Company and its group companies. A Risk Management Policy has been adopted by the Board of Directors which inter alia sets out risk strategy, approach and mitigation plans, liquidity risk management and asset liability management.

The group companies have their own risk management framework in line with its strategic business operations as appropriate to the industry in which they operate. The risk management framework of NBFC and insurance businesses are broadly based on (a) clear understanding and identification of various risks (b) disciplined risk assessment by evaluating the probability and impact of each risk (c) measurement and monitoring of risks by 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 the group companies, the risks faced by them and the risk mitigation tools followed by them are reviewed periodically by the Risk Management Committees and the Boards of the respective group companies.

CIFCL?s risk management division works as a value center by constantly engaging with the business and providing key insights into the portfolio based on data driven analysis. The key risks faced by CIFCL are credit risk, liquidity risk, interest rate risk, operational risk, reputational and regulatory risk, which are broadly classified as credit risk, market risk and operational risk.

The in-house developed risk monitoring tool of CIFCL measures the movement of critical risks. This provides the level and direction of risks, which are arrived at, based on the two level risk thresholds for the identified key risk indicators and are aligned to the overall company?s risk appetite framework approved by the Board.

The risk management framework of CMSGICL broadly comprise of establishment of risk management policy, formulation of risk register, review of key risk exposures and asset liability management. The Risk Management Committee of the Board of CMSGICL reviews the risk management framework periodically. Key risk exposures of CMSGICL include financial risk, credit risk, market risk, operational risk and compliance risk. CMSGICL?s Enterprise Risk Management (‘ERM?) function continually conducts risk and control assessments for all functions across the Company. Risk management activities of CMSGICL are aligned to its corporate objectives, organisational priorities and designed to protect and enhance its reputation.

During FY 22 the Risk Management Committee of CFHL?s Board reviewed key risk exposures of the Company along with mitigation measures, asset liability management, structural liquidity management, key risk exposures and mitigation measures of subsidiary?s businesses viz., NBFC and general insurance businesses.

INTERNAL CONTROL SYSTEM

Internal control systems of an organisation is looked at as the key to its effective functioning. The Company has internal control systems in place commensurate with the nature of business and size of its operations, to ensure compliance with internal policies, regulatory matters and to safeguard reliability of financial reporting and its disclosures. An audit of systems and processes is conducted by the internal auditor of the Company and significant observations, are reported to the Audit Committee every quarter. The Audit Committee evaluates adequacy and effectiveness of the internal controls, recommends 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 of corporate governance. A report on corporate governance of the Company together with a certificate from practicing company secretaries in accordance with the SEBI Listing Regulations is annexed to this Report as Annexure II.

The Report further contains other details which are required to be provided in the Board?s Report.

BOARD MEETINGS

Five meetings of the Board were held during the year ended March 31, 2022. Further details 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 of the Act, the SEBI Listing Regulations and the Master Directions of RBI. Details of terms of reference, composition and meetings of the committee are disclosed in the Report on Corporate Governance.

BOARD EVALUATION

Pursuant to the provisions of section 134 of the Act and regulation 17 of the SEBI Listing Regulations, the Board of Directors have carried out an annual performance evaluation of the Board itself, the individual directors, various committees of the Board and the Chairman for FY 21-22. The manner in which the evaluation has been carried out is provided in the Report on Corporate Governance.

POLICY ON BOARD NOMINATION AND REMUNERATION

The Board has formulated a policy for selection and appointment of directors, senior management and their remuneration. Details of which are furnished in the Report on Corporate Governance.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Company being a part of the Murugappa Group, is known for its tradition of philanthropy and community service. The Company?s philosophy is to reach out to the community through service-oriented philanthropic institutions in the fields of education and healthcare. With the enactment of CSR provisions in the Companies Act, 2013, the Company has framed a CSR policy and the policy is available on the Company?s website at http://www.cholafhl.com/article/profile/967. Since the amount required to be spent by the Company towards CSR activities does not exceed the threshold limit prescribed under section 135(2) of the Act, constitution of the CSR Committee is not mandatory for the Company. Accordingly, the Board discharges the functions of CSR Committee envisaged under the Act.

Pursuant to the provisions of section 135 of the Companies Act, 2013, atleast 2% of the average net profits of the Company shall be spent towards CSR activities. Accordingly, the Company has spent an amount of Rs6 Lakh on CSR projects/ programmes approved by the Board during the year ended March 31, 2022. The annual report on CSR activities has been appended as Annexure III to this Report.

RELATED PARTY TRANSACTIONS

All transactions that were entered into by the Company with related parties during the financial year were in the ordinary course of business and on an arm?s length basis. There were no materially significant related party transactions during the year which had potential conflict with the interest of the Company at large. Pursuant to section 134(3)(h) read with rule 8(2) of the Companies (Accounts) Rules, 2014, there are no transactions 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 financial statements. The Company has formulated a policy on related party transactions. None of the Directors had any pecuniary relationships or transactions vis-a-vis the Company.

HUMAN RESOURCES (HR) AND PARTICULARS OF EMPLOYEES

Human Resources (HR) are the valuable assets for the Company. CFHL along with its group companies has a work force of more than 9900 employees as at March 31, 2022. The group companies have robust HR management practices enabling achievement of organizational goals and key milestones through people. Safety and well being of the employees continues to be focus area. The companies continue to emphasize on resourcing and talent planning strategies based on their functional and general management requirements in preparing the organisation for the future.

As on March 31, 2022, there were two employees on the rolls of CFHL. The information required to be disclosed under the provisions of section 197 of the Act read with rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 is appended as Annexure IV to this Report.

EMPLOYEE STOCK OPTION (‘ESOP?) SCHEMES

The Company?s ESOP Schemes viz., Employee Stock Option Plan 2007(‘ESOP 2007?)and Employee 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 respect of ESOP 2007 and ESOP 2016 as required under the applicable SEBI regulations are displayed on the Company?s website at http://www.cholafhl.com/article/investors/554. Both the schemes are in compliance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and SEBI (Share Based Employee Benefits) Regulations, 2014 respectively. There are 41,680 options vested and not exercised under ESOP 2016 as on March 31, 2022 and no options were outstanding under ESOP 2007 as at end of the year. Vide the scheme of arrangement (demerger), employees of the Company were transferred to the resulting company, Tube Investments of India Ltd. The stock options granted by the Company prior to the effective date of demerger, i.e. August 1, 2017, continue to be held by the option grantees who are employees of the resulting company. During the year upon exercise of vested stock options by the eligible option grantees, 5,000 and 14,910 equity shares were allotted under ESOP 2007 and ESOP 2016 schemes, respectively.

The certificate from the secretarial auditor, M/s. Srinidhi Sridharan & Associates, Practicing Company Secretaries confirming that ESOP 2007 and ESOP 2016 schemes have been implemented in accordance with the applicable regulations and shareholders resolutions passed in the general meeting of the Company, will be available for the shareholders at the ensuing AGM.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The Company has no activity relating to consumption of energy or technology absorption etc. 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 Listing Regulations, the Company has established a whistleblower / vigil mechanism which inter alia facilitates its employees to report genuine concerns. The mechanism provides for adequate safeguards against victimisation of persons using the mechanism and makes provision 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 at workplace. An internal complaints committee (‘ICC?) is in place to redress complaints received regarding sexual harassment. The policy extends to all employees (permanent, contractual, temporary and trainees). During the year no referrals were received under the policy and no complaints were pending at the beginning and end of the year.

SECRETARIAL AUDIT

Pursuant to the provisions of section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and regulation 24A of the SEBI Listing Regulations and the rules made thereunder, the Board appointed M/s. Srinidhi Sridharan & Associates, Practicing Company Secretaries, to conduct the secretarial audit for the year ended March 31, 2022. The Report issued by the secretarial auditor in the prescribed form MR-3 is annexed to this Report as Annexure V.

The secretarial audit report does not contain any qualification, reservation or adverse remark by the secretarial auditor.

In terms of regulation 24A of the SEBI Listing Regulations, the secretarial audit report of the Company?s material subsidiary, Cholamandalam MS General Insurance Company Limited, for the year ended March 31, 2022 is annexed to this Report as Annexure VI.

COST RECORD AND COST AUDIT

Maintenance of cost records and requirements of cost audit as prescribed under the provisions 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 Act, 2013, the annual return for the year ended March 31, 2022 is available on the Company?s website at http://www.cholafhl.com/article/subsidyfinancials/400.

COMPLIANCE WITH SECRETARIAL STANDARDS

The Company 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 of Company 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 the Company which have occurred between March 31, 2022 and the date of this Report.

BUSINESS RESPONSIBILITY REPORT

The Company abides by a set of enduring values and beliefs called the ‘five lights? viz., the lights of integrity, passion, quality, respect and responsibility in order to be a socially responsible business, which would on a continuous basis, enhance the interests of all its stakeholders. By steadfastly upholding the principles of good and robust corporate governance ingrained with discipline, accountability, transparency and fairness, the Company constantly endeavors to sustain and enhance itself as a responsible corporate citizen.

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

DIRECTORS? RESPONSIBILITY STATEMENT

The Board of Directors confirm that the Company has in place a framework of internal financial control and compliance system, which is monitored and reviewed by the Audit Committee and the Board, besides the statutory, internal and secretarial auditors. Further, pursuant to section 134(5) of the Companies Act, 2013, the Board of Directors confirm that:

a) in the preparation of the annual financial statements for the year ended March 31, 2022, the applicable accounting standards have been followed and that there were no material departures therefrom;

b) they have, in the selection of the accounting policies, consulted the statutory auditors and have applied their recommendations consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2022 and of the profit of the Company for the year ended on that date;

c) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) they have prepared the annual financial statements on a going concern basis;

e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively during the year ended March 31, 2022; and

f) proper system has been devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively during the year ended March 31, 2022.

DECLARATIONS / AFFIRMATIONS

• There were no significant material orders passed by the regulators or courts or tribunals 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 by the RBI for CICs.

• RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the Company or the correctness of any of the statements or representations made or opinions expressed by the Company and for discharge of any liability by the Company.

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

• There are no applications made or any proceedings pending under the Insolvency and Bankruptcy Code, 2016 during the year.

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

ACKNOWLEDGMENT

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

		On behalf of the Board
		M M Murugappan
Place	: Chennai	Chairman
Date	: May 11, 2022	DIN:00170478