Cholamandalam Financial Holdings Limited (CHOLAHLDNG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Call of Cholamandalam Financial Holdings Limited hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over to you, sir.

Good morning. Hope you and all your loved ones are safe. Welcome to the FY 2021 Earnings Conference Call of Cholamandalam Financial Holdings Limited. This morning, we will discuss the financial and operating performance of Cholamandalam Financial Holdings and its subsidiaries, including Cholamandalam MS General Insurance, Cholamandalam Investment & Finance Company, and Cholamandalam MS Risk Services. Representing the management, we have with us today Mr. Sridhar Rangarajan, Director, Cholamandalam Financial Holdings Limited; Mr. Ganesh N., Manager and CFO, Cholamandalam Financial Holdings Limited; Mr. Suryanarayanan V., Managing Director, Cholamandalam MS General Insurance; Mr. Venugopalan S., CFO, Cholamandalam MS General Insurance. I would now like to hand over the call to Mr. Sridharan for his opening comments.

Thank you, Nischint. First of all, I thank all of you in participating in large number in today's call. I hope you are safe and your family members are also safe, and we wish and pray that you will continue to be safe in this pandemic. Please take care of yourself. Safety is first. To start with, I will have a few opening remarks. And I have my colleagues, Mr. Suryanarayanan, MD of Chola MS; Mr. Venugopalan, CFO of Chola Insurance; and I have Mr. Ganesh, the CFO of the company, here to answer your questions. As you know that -- we have posted the presentation and you would have -- also have attended Chola Finance call as well as the presentation that was posted a few weeks back. Our company, NBFC subsidiary, Chola Finance and Chola MS Risk, continue to report under IndAS. However, Chola Insurance continue to report under IGAAP, and they would adopt IndAS as and when IRDA gives clearance. However, for the purpose of Cholamandalam Financial Holdings, IndAS financials of Chola Insurance is provided to us for consolidation. Chola Finance, though we hold lower than 50%, is treated as subsidiary and with IndAS based on the concept of control. However, it continues to be and associated with the company's action. I will now cover the stand-alone financial performance of Chola Financial Holdings. For the year, 31st March '21, the company made a profit before tax of INR 33.9 crores, providing for tax of INR 12.19 crores. The profit after tax is INR 21.71 crores. Being in NBFC, it made 20% transfers to the statutory reserve of the PAT. The total income of the company is lower by 36% because Chola Finance declared an additional interim dividend last year, which would have otherwise been received in the current financial year as final dividend. Interest expense relating to the fund borrow for investment in equity shares of Chola Finance has also impacted the stand-alone profitability for the year. There's a change in tax law effective from 1st April '20. Dividend is taxable now, and the interest is allowed as deductible expense to the extent of 20 percentage of the dividend income. Hence, you would note that the tax provision is higher in this year. The consolidated results of the company consists of the results of our NBFC insurance business and risk services business. At consolidated level, the revenue from operations for the year ended March 31, 2021, is INR 13,900 crores and PAT is INR 1,764 crores. As of March -- year ended March '21, disbursement of Chola Finance declined by about 10% from INR 29,091 crores in the previous year to INR 26,043 crores in the current year. However, the profit after tax increased by 44% from INR 1,052 crores to INR 1,515 crores. CIFCL asset quality. As of March '21, Stage 3 assets is at about 3.96% with a provision coverage of 44.27%, as against 3.8% in the previous year with a provision coverage of 41.52%. The company created an additional provision as management overlay for INR 350 crores towards the future contingencies in the current year, thereby the overall management overlay of INR 1,100 crores as on 31st March '21. The total provision currently carried against the overall book is about 3.58% as against the normal overall provision level of 1.75% carried prior to the pandemics period. Capital adequacy as at the end of Q4 was at 19.07% as against the regulatory requirement of 15%. In case of Chola MS General Insurance, the top line largely remained flat, INR 4,705 crores as against the industry consisting of PSUs and private players, growth of 2%. Growth in FY '21 was halted by national lockdown, having its effect on the economic growth as -- of well over 6 to 8 months for the year. Resurgence in the last 4, 5 months of the year helped us to bounce back to the level of FY '20. Chola MS most productive quarter with a volume of INR 1,374 crores, which is the Q4, a 41% growth that was significantly higher than the industry growth. The profit before tax was at about INR 367 crores. Chola General Insurance Express, which has become our principal growth driver, crossed more than INR 1,000 crores of GWP mark despite the lockdowns and is our principal channel. Growth in premium from OEM tie-ups was significant during the year. And they have also added new OEM tie-ups, achieved portfolio diversification by strong growth in property lines and also achieved mixed diversification within motor LOB, the strong growth of two-wheeler and in car segment. You would note that two-wheeler and passenger vehicle was about 24.4%. Now it is 41.8%, while commercial vehicle was 75.6%. It moved to -- down to 58.2%, making this mix change in the last 2 years. They've commenced new virtual office model testing out in Uttar Pradesh, which is getting a positive feedback and probably would roll out more. All SBUs added new channels, which contributed to as much as 7 percentage of Q4 volume. The year witnessed growth in Indian commercial, SME and bancassurance vertical; at SBU, operationalized the site's customer journeys for agent onboarding policy issues. A COVID year also meant that we had to do our jobs, a lot of helplines, impacting our result by over INR 140 crores. Chola MS has a claims settlement ratio of over 75% by value of claims [ tilt ] to the claims made. This is the second-best ratio in the industry, showing our commitment to timely and transparent claims servicing policy to the holders. The motor OD claims team maintained its track of high settlement levels and maintained its leadership, which we have shared in our presentation data relating to that. Cholamandalam MS Risk Services, a small but niche company, reported a profit after tax of INR 1.95 crores. To summarize on the insurance side, I think -- a few points I would like to summarize. Investment related provisioning more or less fully provided. We have shared the details in the presentation. Solvency has improved to 2.08 from 1.58. Product mix change in 2 years has achieved significant expansion in networks and partnerships. Technology-enabled process across value chain and analytics, this will go on for another 2 to 3 years to make Chola MS the best tech-enabled GA player in India. We have also strengthened the organization in information technology. Anubhav Rajput is leading the work there and also strengthened the organization within that. We've also strengthened the investment management team. Abhiranjan Gupta is leading it, and there's a significant change made in the investment team. We have also strengthened all vertical line leadership. And I think Chola MS is ready and fully geared in terms of its organization structure, and the deep investment that they are making in terms of the technology will augur well for the future. With these comments, I would like to open up for Q&A. We have our insurance team to clarify all your questions. You would have covered the NBFC discussion in their call as well as the transcript is posted. So you would have gone through that. So we welcome you. Please ask your questions. Thanks for your participation.

[Operator Instructions] The first question is from the line of Devansh Nigotia from SIMPL.

For -- sir, a couple of questions. Sir, one is -- so considering the COVID claims that have come in last 2 quarters have been -- has really surprised on the negative side. I mean earlier, there were issues with the investment book. And now there is this new negative surprise. So overall, at company level, how are we thinking in terms of risk management? So what is the thought process behind taking risk? So if you can just throw some light there.

Yes. Sury, if you can cover that.

Yes. Let me proceed to answer this. A question with respect to the COVID claims. We should understand that COVID claims is not something unique for Chola MS. It is something which has impacted the entire industry. And with the total reported claims of something around INR 14,000 crores only on COVID, of which about INR 8,000 crores has got settled by all players in the industry, that's small. So it is not something that is unique for Chola MS. So that is the first point that I would like to place. The second is that you -- quite naturally, yes, some of these were -- rose both out of indemnity and benefit products. Those rising out of indemnity products would probably have a much higher severity, as it's reflected even in the industry severity numbers. Chola MS had a largest proportion of benefit-related claims, where the severity is less than -- or it's now about 1/3 of what others have paid. So to that extent, it has -- this has been slightly better. And the pandemic is not something that can be actually managed in terms of risk because there is no eager -- even reinsurance cover that is available for a pandemic. So -- the entire -- unlike property insurance or any other insurance where there can always be a balance sheet protection coming out of reinsurance, a pandemic is never reinsured. So to that extent, this impact that the entire general insurance industry and the specialized health insurers are taking, it sits on the balance sheet. From a purely financial risk point of view, a risk transfer is just not possible.

Sir, but we look at -- if you look at our peers, I mean like Lombard and Alliance, I mean even they have a health insurance book, but we have not seen that kind of negative surprise on their book in comparison to us. So that is where the question was actually coming from that. But I mean selling the -- you sold a lot of COVID policies considering what was our existing health book. So that was the overall idea.

Yes, yes. So we did sell the COVID covers in the first quarter of last year before IRDA came up with its standard products, which got introduced in July, August. So to that extent, yes, those products will have their natural runoff perhaps in July or so. And thereafter, Chola MS may not see claims coming in from the COVID-specific benefit products that we had launched. The generic product that IRDA had launched, yes, those are there, which got launched from July.

Okay, okay. And sir, if you can just throw some more light on the health portion. Like how has our agency network trended over the last 4 years? And what -- how do we really make this segment a high percentage of our mix profitability? So if you can just throw some more light on that. And if you draw reference from the leader, Star Health, I mean -- like they have cracked this business model. So what do you think -- what will it take for us to go in that direction?

Yes. So we have begun our focus on growing the health business. Last year, the beginning steps that were put in place were actually digitizing the entire customer journeys, beginning with the agent onboarding journey, digitizing the policy issuance journey, the agent performance journeys, and also sprucing up the claims management and servicing journeys. So what -- these are all -- including the portability, the straight-through processing, the telemedical underwriting-driven processes, all of these have been spruced up and put in place. The second work that has very much happened is the product diversification and approvals. Our flagship product continues to be the Chola Flexi product, which is what is, by and large, sold. We have received IRDA approvals for a few more products, which are under IT development for offering to the public. So when this is done -- so we have also drawn the brand positioning for health quite distinctly. So we should -- we waited for the back end, which is ready now. Once we also have the diversified products available, we should see the Chola Health Insurance more out in terms of brand positioning. And that is the larger journey which will get undertaken during the current year to really grow the health. Coming to some specific numbers, we do our retail health business numbers both out of our agents and point-of-sale personnel plus what we get out of the various bank tie-ups which are not bundled insurances, not attachment insurances, which are rather sold to the liability customers of banks. It could be the typical savings bank customer or current account customer, and they -- it is not bundled the same. So presently, our volumes in the agency, we have about -- our point-of-sale additions last year was about 5,000 to 6,000. We have about 12,000 agents who sell health. Our volumes, the focus is more on increasing the activation of these agents, which is where work has happened. We expect our retail businesses from the agents, from the public sector banks to grow pretty well next year. The -- Chola MS always had a stronger presence in the bundled attachment sales in health through the financial partners, while that took a beating last year in view of the pressures that the financiers face. But that is something where the volume will come back over a -- say, from the H2 of the current year or current -- even from Q2 beginning. So that will be there. Chola MS always had an enhanced weightage from the attachment business. Now in the current year, we would want to look at a proportion of 40-60, 40 coming in from retail sales and 60 coming in from the attachment sales in the current year. This is a proportion which we would like to keep tweaking and changing over the next few years, 2, 3 years, which should help us position and grow Chola -- help as a retail brand as well. While we are well-known in the motor side and are a large player, this is what we would like to do with you on the health space.

Okay. And sir, can you elaborate more on what is the role of Alliance, sir, in the Cholamandalam General Insurance Company? If you can just throw some light. I mean, what is it? Is it you focusing on the strategic part? Is it business development? Is it clean? If you can just throw some light that it will be helpful.

Yes. So S. Vellayan is a director in Cholamandalam Financial Holding. And he gives the broad direction in terms of the portfolio that we hold, both in terms of the NBFC and the other businesses that we have. Insurance business has a separate board, and it is fully professionally managed, where we have a full-fledged team and the team is managing independently.

Okay. And sir, I mean what is the thought process behind raising INR 200 crores NCD in Chola Financial Holding? I mean are we looking to enter some new business? Or since it's a holding company -- so if you can just throw some light there.

This NCD rise is to pay back certain loans that we have taken at higher cost for us to subscribe for the Chola Finance preferential issue, and that's what we have done. We brought down the interest rate. We took a INR 300 crores loan. Right now, we have paid INR 150 crores. We have INR 150 crores to be paid.

Okay, okay. And sir, if you can just throw some light on qualitative point in terms of the changes in the investment team. You highlighted something in the earlier point, but if you can just throw some more light. Like what was the investment team before, the number of count? How big is the investment team? Who is heading it? And some soft points would really help.

Sure. So Sury, would you like to...

Yes, yes, yes. See, we had Mr. N.V. Murali, who was the Chief Investment Officer. He is superannuated, out of the company. In January, we brought in Mr. Abhiranjan Gupta, who was the Chief Investment Officer of HDFC ERGO. So he is now the Chief Investment Officer of Chola MS. Under him, we also have people who have come in from companies like Bajaj Life to help with that portfolio. So we have strengthened the -- both the research and the analyst team both on the debt and the equity side. So this strengthening has happened. And so -- and there are a few more positions especially on the equity side that we would like to add in the current year. We would want to strengthen the equity presence over a period of time. So accordingly, the team strengthening would happen on that direction as well.

Mostly on the research side, we may strengthen it.

Okay. And sir, if you can just throw some light on...

Sorry to interrupt, sir. Mr. Nigotia, sir, I would request you to rejoin the queue for follow-up questions. The next question is from the line of Nidhesh Jain from Investec.

Sir, first is a bit high-level question. If I look at the holdings of the discount for our company, it is pretty high versus some of the other holding companies of similar fundamentals like Bajaj Finserv and other groups which are trading. Given that our group companies have very strong growth potential and very good operating matrices, what, in your mind, is the reason for holding company discount? And do you plan to take any corporate actions or any steps to -- which may reduce this holding company discount in the future?

Yes. Thanks for the question. I think what we would like to do is, I think, as far as the Chola Finance portfolio is concerned, it is well covered, and we have a lot of coverage in that. What we don't have at this point in time is the coverage on the insurance, which I think we realize we should have more discussions around that. We have started in the last 6 months but in a very, very slow and COVID environment. But I think we will increase that transparency more. We should give more and more color to the insurance business, and people can appreciate the strength of the insurance business and thereby understand the Chola Financial Holdings stock better, which should, in turn, help the market to read the business better. So that should help. This is what we should do.

Sure, sure. And the second, the comment that -- if you look at our investor communication, as of now, till now, it has been a bit sporadic outcome. We have not been organizing the calls on a regular basis. Investor presentation and disclosures doesn't show -- specifically on the general insurance side are not comparable to some of the listed companies, like ICICI Lombard. So just a comment from my side, if you can have more regular interaction and probably the disclosure and loss triangle and segment-wise loss ratio, that would, sir, also help analysts like us.

Noted, sir. I think this is -- we bear in our mind, yes, of course.

And sir, last one question on the COVID...

Apologies, Mr. Jain. There is a slight disturbance coming from your line, sir, from the background.

Sir, just one question around the COVID impact. Last year, you mentioned that INR 140 crores is the claims that you have paid on COVID. What is the same number in the last 45 days of this quarter?

[indiscernible] in the industry, we do see a surge in claim count that is getting reported across the industry, and we will have our share of claims as well in quarter 1.

Sure, sure, sure. So sir, do you expect this INR 140 crores number to multiply 2x, 3x? Or how should we think about this for the full year? If any guidance there, that will be helpful, sir.

I think as I mentioned earlier in the call, the losses from the products that we had launched, these policies ran for anywhere up to, say, 7 to 8 months in the previous year. They have, by and large, a residual life of about 4 months. So we would tend to think that the gains should drop down after that.

The next question is from the line of Geetika Gupta from First Voyager Advisors.

I have 2 questions. First is on the strategic direction. If you could comment, right, in terms of both distribution as well as the product mix because even within motor, there is a big -- a very significant change in the product mix has happened in the last 2 years. So are we largely done? Or how are we looking at the company over the next 2 to 3 years' perspective? That's -- second, if you could comment on the team side as well because I think [indiscernible] strengthening of the team is not only on the investment side but also on the product side. So if you could comment there. That's it.

Yes. So very broadly, what we would -- we have been trying to do and have been fairly successful is to diversify away from motor to a larger extent. That is #1 priority. The #2 priority is while motor remains strength -- and, of course, it is also the largest line in the industry and our own skill sets have been built over the last 18 years. So within that, we are also seeking diversification. So more on the motor side first. So we were primarily a commercial-vehicle-dominated insurer. So from there, we have made the transition into diversification into two-wheelers in a big way. We commenced this journey in October 2018. And last year, we ended with close to about 16.5% of the motor business coming in -- 0% to 16.5% in a matter of about 2 years. And we see this journey moving forward as well. So we've got into several OEM programs of two-wheelers, so -- which is also helping our costs. Plus our own presence in the Tier 3 towns is helping us penetrate these sub-dealerships in all these [ counters ]. So that is one direction. The second is also stepping up the presence in cars. So we have got into there. Again, the OEM programs of a few large OEMs, which is again helping. So this direction and there -- into cars, two-wheelers and the tractors. Tractors, about -- it constitutes about 8% of our total motor business. So actually, core commercial vehicle is now down to about 50. And we see that going down even as we go along for a variety of reasons. One, at least in the current year, we do see the sluggishness seems to continue for some more time, while the bounce back both in terms of cars and two-wheelers can be pretty fast. So it will also help in the acceleration of the proportion of our cars and two-wheelers. So while this is the picture with respect to motor on the overall non-motor share of business, we did talk about health. The other major area is actually the commercial lines. Now commercial lines have grown by several verticals. We have added on to our bancassurance tie-ups. We are now with Punjab National Bank, which means that the 2 banks that folded into it is also there; likewise, Union Bank and the 2 that folded into it; Bank of Baroda and the 2 that folded into it; and Indian Bank where Allahabad Bank have folded into it. So these businesses have grown and grown well even in the last year. They continue to be -- provide us several advantages. One, in terms of a much more balanced geographical presence, which is also liked by reinsurers because no reinsurer would want an accumulation or a concentration of exposures only in Maharashtra, in Gujarat, but would actually want a more widespread disposal of risk. That is where the bancassurance is clearly helping us position in that session. That is one vertical. The second vertical, what we have done is that we have a separate SME vertical within the company, which has done well last year and has made a good beginning even in April. So -- which is adding to our commercial lines. The third is the large corporate business. We have strengthened our reinsurance capacities. Over a period of 2 years now, our reinsurance capacities have doubled. We are thankful to our reinsurers for reporting confidence in us. We have also given them good results over the last few years, which has made them report that confidence. So that is also helping us now write a good proportion of larger risks with reinsurance support. So the numbers were -- April were out. And you'd have seen that Chola MS has grown much higher than the industry growth in the month of April. It is actually resting largely on the growth in the commercial lines of business there. So this is the strategic direction of the company in terms of diversifying away from motor and within motor, lowering the share of commercial vehicles. And the team -- in fact, yes, we talked about investment in debt. Even in respect of the other divisions, we have now organized ourselves as strategic business units. And with -- when we operate as verticals, there are about 11 verticals within the company, each of which is a profit center, and that is how the business performance of each of the vertical is tracked, measured.

Okay. And just a follow-up. In terms of the bank tie-ups, the focus will be on commercial and SME lines, right, because health benefit as an attachment product, I think there was -- the idea had certain concerns on there. So I just wanted to clarify that.

Actually, the public sector bank tie-ups provide an opportunity, right, across all businesses. The focus and the -- much of the energy is actually on the property segment. But the banks also provide an immense opportunity in terms of tapping the health businesses, especially with the liability customers. So the banks also need fee income in uncertain times. And the -- and in health, actually, they get a much higher commission than what they would get from a property line of business. So it's a win-win, and that is what, in fact, any insurer with bank arrangement with a government-owned bank is trying to do.

The next question is from the line of Swarnabha Mukherjee from Edelweiss.

Sir, I just wanted to understand basically your health and motor business [indiscernible]. So in health business, I wanted your views on the areas you were targeting in the sense that I understand that earlier, you were a primarily beneficiary business and since, I think last year, you had mentioned that you want to focus towards the high-growth indemnity side. However, the deterioration of the loss ratio in your health business is significant this year. So I wanted to understand. Is this only because of the mix change? Or is it also because of the COVID claims, negative surprise that has come through? So if you can talk on the health side on this point. This is one. Sir, the second question is on the motor side. So given that you are focusing now on the two-wheeler and personal vehicle segment, so given that it would have OD element, how do you expect the overall profitability in this segment to turn up given the trends in the OD segment? Do you expect that pressure on the profit from the competition there? And also on the PV side, sir, the risk selection strategy here, if you can also highlight that because you were -- had a large presence on the PV side. So also on [indiscernible]. But yes. Those were my questions.

Sorry to interrupt, Mr. Mukherjee. There is a slight disturbance coming from your lines. [Technical Difficulty]

Sury?

Yes. Let me proceed to answer the health claims part first. So you are right. COVID claims also arises not just from the COVID-specific products but also from our normal health indemnity products and also from the products that we sell to the bank customers. So that is the reason. So -- and there is nothing more to it actually. Other than COVID claims, from what we see, we are finding it's pretty normal. And in fact, what we are seeing is that normal claims, there is -- again, what we are seeing is a tendency for deferral of planned hospitalization. It could be a cataract or it could be a knee displacement. It could be any other planned hospitalization. We are only seeing a deferral there. Moving on to motor. You're right in terms of the fact that the OD loss ratios are under pressure for several reasons. One is actually, the positive are the reduction in new vehicle sales. The sluggishness in renewals is also leading to a higher discounting of motor prices, which pushes up the OD loss ratios. From the presentation that we have put up, you can see that Chola MS has continued to maintain leadership in OD loss ratios. While we compare well with the rest of the competition and the peer group, including the larger players, it is a fact that the OD loss ratios moved from the earlier levels by -- at least by about 5%, 6% during the last year. But what places it slightly differently is that we have our presence in the entire yearly cycle of the vehicles. While the OEMs give us the presence in the new vehicles, typically in 0 to 3, our presence in financials give us the presence between the 4 and typically the used vehicle, anywhere between 3 and the 6th and 7th year. Our own presence in the Tier 3 towns gives us the presence in the older vehicles ranging from 7 to 10 or at best, 7 to 11. So the large experiences of these 3 categories are very different. And the blend of these 3 is what helps us get overall loss ratio, which is comparable and rates amongst the best in the industry. So that is the broad picture of how things are moving. Risk selection strategy, yes, we understand motor is a bread-and-butter business. We understand dynamics at every subcategory level and at a very district level. So we have our data and analytics to understand how each of the 700 districts in the country behave with respect to each subcategory. And that is what helps us plan our own business. We are leaders in the motor business in 4 states across categories, overall volumes in motor. We are leaders, of course, in our home state, in the states of Telangana, Andhra Pradesh and Chhattisgarh. And we rank amongst the top 3 in at least the 4 other states.

Okay. Sir, that's very helpful. Sir, just a couple of follow-up questions. In the health business, will you be able to share the current mix of benefit and indemnity? And also, if you could give some color on -- without these COVID portion of the claims, how -- in what [indiscernible] would you be estimating the loss ratio for the company in the health space?

The second part, I can take it first. There are, of course, the COVID-related losses. Our loss ratio should be around the 60% to 62%, 63% band. That is how our loss ratio should be, which is why I'm saying that it's just the COVID-related losses that is impacting us. And then coming to the indemnity benefit, today, we are at a level of something like -- what I said earlier is that we would like to move to a 40-60 scenario in terms of indemnity and to benefit. Today, we're at about 30-70 in the current year. 30% is indemnity. 70% is benefit. In the coming year, we would like to move that to about 40-60. The attachment product business is a much larger business. So it's much larger in size and -- which is where this directional change would happen.

Okay. Sir, that's very helpful. Sir, last question from my side...

Sorry to interrupt, Mr. Mukherjee. Sir, I would request you to rejoin the queue for follow-up question. The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.

Sir, just one question. These conference calls will be now a regular phenomenon? Have you talked about it?

We will make it regular, yes.

And even the presentation will now -- and when you say regular, it means quarterly, right?

Yes, sir. We will make the presentations, yes.

The next question is from the line of Sanketh Godha from Spark Capital.

I have a couple of questions. One is that we started something we call virtual offices in the current year. Just wanted to understand how different it is from smart offices and what exactly these virtual office product categories will be catering to? And how different it will be from the smart offices? That's the first question I have. And the second question which I had is with respect to Chola industry itself. In the presentation, you said that you have a market share of around 33 percentage in that NBFC. So just to -- and then you intend to increase it. So I just wanted to understand what are the measures taken to increase their market share and to what extent it can grow and what proportion it can contribute to the growth. And even if you can expand on that NBFC store synergy where you will plan to sell about low-ticket size policy on that, it will be very helpful. And finally, I mean, in -- on the banks, like corporate investments, it's around 50% of the business for us. Can -- it will be great if you can break down that into IndusInd Bank, Chola, SMO and PSU bank and how it was this year so just to understand how SMO and PSU bank contribution have increased for us in percent.

Yes. So first, let me talk about the virtual offices. So this is in the beginning that we have made in the state of Uttar Pradesh. This is where we are entering that state. Our smart offices, Insurance Express offices are all based -- we have 470-plus of them. They are all based on a physical office presence that are driven with kiosk, where the brand promise is insurance in minutes, and where the policy is given in a matter of 3 to 4 minutes' time. And that is where we have built up a local, community-level awareness creation for the brand of Chola MS in all these terms. So in the virtual office, actually, the typical way that the SMO works is go about building the distribution and the agent network, the point-of-sale person network first. And then they go into the sub-dealers and other things. So that is the format generally followed in an SMO. New virtual offices -- so what we have done is actually reversed that. We are now trying to do first this sub-dealership, and this would largely be the tractor, under two-wheeler parts that we want to look at and establish a base of business. Once that base of business is established, then we would be looking at a possible conversion from a VMO to an SMO or an Insurance Express outlet. So in that sense, we could say that this is some form of a backward integration. So this is only to ensure that even when an office comes up in the town, it is always on the foundation of a minimum certain level of business. Now what we have realized is that for doing a dealership-related business, we don't really need an office, and we need office only when we want to start building the agents out there. So one, this is more from a point of cost optimization and productivity improvement, and overall COR improvement is what we have made this. This experience is now about 5, 6 months old, and we are seeing good response there. During the current year, we should be extending this not just in the state of UP, but also in a couple of other states. So this is the virtual office model. So Sanketh, if you can repeat your second question.

Sorry. Yes, second question was on Chola industry itself. In the presentation, you said that you have 33% market share in Chola NBFC, in PV segment. So -- and in the same slide, you mentioned that you want to increase the market share. So I just wanted to understand how will you want to do it, what will -- and how much it can contribute to the growth. And in the same slide, you mentioned about NBFC store. If you can expand on that thing also, it would be great.

Yes. Let me answer that part. So for -- one at a time is probably easier. So Chola, we consider Chola Finance as a captive channel -- so, which provides us with sustainability and stability. One area where we would definitely want to step up growth is ensuring a much higher renewal ratio when it comes to Chola's business. We know when it comes to new business that Chola Finance writes, , those again would be the exclusive preserver of the dealers even that is something which Chola Finance will not be able to control. But with respect to the used vehicle finance business that they write. So there is a very clear natural preference and insurer of first choice advantage that we would have with them but ensuring that we step up on the renewal ratio. So that renewal ratio is going to be the clear focus, which mean that we'll have a much greater penetration there so that they -- that is where a whole lot of work in close coordination with the field teams of Chola Finance has happened over the last 12 months. A lot of digital enablement have been made, which facilitates even a collection person in Chola Finance to try and offer Chola insurance products.

Got it, sir. So sir, you see how this market share to move, sir, from 33% to -- I think, at what time frame, maybe 50 -- more than 50-odd percentage? Or is there...

We look at it more in terms of the renewal ratio movement there that, well, if you are able to do that, the ultimate numbers will come. But the way we want to look at it is that this is a channel that we would want to focus and grow. But we would want other channels to grow as well, parallelly. So I do not want to have that against what proportion Chola Finance would be. But we have very clear plans. Both the teams have a common vision of growing this business for both the companies. For them, it's a fee income. And for that -- for us, it's a premium. And for the collective customer fold of Chola Financial Holdings, it's a combined offering which comes in, where they get the assurance of Chola MS claim servicing.

Okay. Sir, if you can expand on the NBFC stores and then also on the banks, corporate agency, which -- if you can break it down into IndusInd, Chola, SMO and PSU banks.

See, actually, we have -- in the pie chart that is there in the presentation, we have talked of corporate agent captive. That represents where our own Insurance Express outlook.

Okay, okay. And within bank of 27.5%, how much would be IndusInd and PSU, sir?

See, IndusInd Bank would be -- see, the overall bancassurance is shown at about 27.5%. The IndusInd Bank would be at about 16%. 11% would be the other banks, the -- primarily the sector -- public sector banks.

And how it has moved compared to last year? Sir, so I just wanted to understand our traction in PSU banks.

See, the overall 27.5% would have been, by and large, the same. But last year, since IndusInd Bank provides a good proportion of commercial vehicle business and that business, they grew pretty deeply as part of the pressure on the commercial vehicle space. So they end up -- for that gap, that was -- the wide that was created by IndusInd Bank by dropping business has been filled in by the volumes from the public sector banks.

Okay, okay. Got it. Got it.

And that is also a reason why the PV business is under related. So we had something close to about INR 200 crores business drop from IndusInd Bank. And it was also the reason -- with that INR 200 crores, possibly, we would have been -- our overall growth rate would have been plus 5% instead of being -- breaking even with the previous year's level.

The next question is from the line of Dhaval Gada from DSP.

I just had one question relating to Chola Express. So I mean if I go back to my notes back in 2017, '18, when we started this in a big way, at that point of time, we had about 30%, 32% kind of cost ratio. And today, when I look at even FY '20, we were at about 31% and now 35% kind of cost ratio. So I just wanted to understand what did we achieve from this line, which has now become a very important part of our distribution. Because clearly, it doesn't seem to suggest that we've got operating efficiencies. So if you could expand what has been the end gain of these 400-plus branches of Chola Express?

See, there are several advantages which have come in. One is, actually, the market presents and promoting the Chola brand. Today, you walk into -- we have 200 such offices in the states of Andhra Pradesh and Telangana. So Chola is a household name there in terms of market awareness, Chola. And these have also helped us. I said that in motor, we are leaders, the #1 motor insurance player in both these states. So this has come in also because of these Insurance Express outlets. So that's advantage #1. Number two is that we see -- the biggest advantage that I see in a pandemic environment is -- I talked about the 3 categories of channels. The first bounce back will be the Insurance Express outlets because they are older vehicles. The renewals will come back first. The OEMs will come in second from a new vehicle sale and the servicing and other part. The financial will be the last to bounce back. So the advantage of this presence, even in the last year, one reason why we could bounce back stronger in Q3 and Q4 is the strong growth in business that came in from these Insurance Express outlets in the quarter 3 and quarter 4. So this is the second part. You talked about the cost structure. So since this is also a manpower-intensive structure and in a lockdown environment, there are fixed costs that stay. So naturally, that cost has to be sort of bond. In a normal environment, definitely, the cost structure would get amortized over a larger volume base. That is the third element. The fourth element, what you don't see in the current year's results is that these are also the channels which bring in a large portion of long-term premium, which is sitting in as the premium in advance and which will convert into premium of subsequent years. So they -- also, they generate the investment income. So that is the positive -- fourth positive element.

Sir, just one follow-up on the renewal side that you talked about. Is there an element of cannibalization from your existing channel to Chola Express? I mean if you did not have Chola Express, would these renewals be lower? Or -- I mean just trying to understand if there is -- are we duplicating the benefit of -- because there is cannibalization. Any thoughts on that?

No, cannibalization is not possible because each channel falls to its customer base very fiercely. So the moment -- even when my team tries to -- they do any conversion of their customers. So you will have a [indiscernible] there. So there is -- I would tend to think that they are also very particular with a customer sourced by a particular channel remains with that particular channel unless the customer is very specific that he wants to change the intermediary charts. So otherwise, we don't go about doing that. So that doesn't happen.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited for closing comments.

Thank you, everybody, for joining in this call today. We thank the management for providing us an opportunity to host the call.

Thank you, and we wish you safe day ahead and be safe. Thanks.

Thank you.

Thanks, everyone, and stay safe. Stay healthy. Thank you. Bye.

On behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.