Chola reboots digital lending—this time on its own terms

After scaling back its fintech partner model in 2024 and eventually discontinuing it entirely due to compliance complexity, governance concerns, and the impact of small-ticket loans on borrowers, the company has re-entered the space with a fully in-house digital lending platform that it controls end-to-end.

The move comes at a time when the segment is stabilizing under tighter regulations and mature insurance practices.

“We have stopped digital lending through financial technology partners for now,” CEO Ravindra Kumar Kundu said. he told Mint. “This partnership business has diminished because the regulated entity has to monitor the performance of these companies and meet compliance for them, which is a Herculean task. We also saw salaried people taking multiple loans, which was becoming a burden for them.”

The Reserve Bank of India’s digital lending framework, first introduced in September 2022 and consolidated under the Digital Lending Guidelines 2025, has tightened norms around balance sheet liability, data usage and first-loss default guarantees. The result was a cleanup of practices that fueled the boom in small-ticket loans but also led to increasing distress.

“Digital lending has witnessed a lot of regulatory cleansing in the last three to four years,” said Sanjay Agarwal, senior director, CareEdge Ratings. “Previously, small-ticket, short-term digital loans ₹500 to ₹10,000 had become the biggest problem area because borrowers were often unable to repay and impulsive borrowing was common. “However, the industry has used the last 12-18 months to correct its practices and is now reaching a certain level of maturity.”

digital strategy

Chola’s previous digital loan book has rapidly expanded through fintech partners to: ₹500 crore per month. The current model follows a proprietary approach, offering digital loans only to existing customers who have completed at least one full loan cycle. Eligible customers receive personalized WhatsApp-based links to complete their loan journey digitally.

“We did not open this channel to the public,” Kundu said. “We only offer this to our existing customers. We have learned from our experience and want to maintain both quality and growth. That’s why we’re moving slowly, but the business has huge growth potential.” The new model is paying off ₹75 crore ₹100 crore per month, ticket sizes ₹1 lakh and ₹2 lakhs.

Personal loans and digital loans often overlap in the industry because many personal loans today are provided digitally. “Digital lending is generally unsecured personal lending with a completely digital journey. Secured loans may include more traditional underwriting. The difference in reporting arises from the disbursement model and regulatory structure,” Agarwal said.

For Chola, the controlled re-entry into digital lending is part of a broader diversification strategy. The company remains focused on secure lending, but sees digital lending, AI-driven insurance and consumer lending as areas that will gain importance in the next decade.

Portfolio mix and consumer behavior

Vehicle financing remains Chola’s largest business, accounting for approximately 54% of its loan book. Although some news suggested that the company planned to reduce this share below 50%, Kundu explained that this was not its aim.

“We don’t want to reduce vehicle financing from 54% to 50% or 45%. The mix automatically changes because these assets behave differently,” he said. Vehicle loans amortize rapidly within two to four years, while mortgage-backed products remain on record for seven to 12 years.

People in small towns want to expand and they want to get loans. Repayment capabilities increased

Consumer finance, which includes gold loans, personal loans, unsecured business loans and consumer durable finance, currently accounts for around 10% of the book. Kundu noted that although the company is growing this segment at the same pace as vehicle financing and mortgages, its share will likely remain around 10% because these are small-ticket, short-term and quickly sold-out products.

Most of the offerings were launched in 2022, with the gold loan category added this year. The segment is more about building capacity for future customer needs.

“We are preparing for the future because these customers will start buying these products in 5 to 10 years and we will be ready by then,” he said.

Chola’s diversified approach supported strong performance. In FY25, the company reported its total revenue as follows: ₹28,116 crore, up 22% from FY2024. Net income increased ₹Profit after tax again increased by 22% to ₹ 14,583 crore ₹4,372 crore, reflecting 26% growth. Total AUM crossed ₹2 trillion as of March 2025, an annual increase of 27%.

The momentum continued in the first half of FY 2026. Net profit increased by 27% on an annual basis ₹7,939 crore while PAT increased by 20% ₹2,291 crore. AUM reached approx. ₹2.15 trillion as of September 2025, a 21% increase compared to the previous year. Chola has a customer base of over 43 lakhs.

location advantage

A key pillar of Chola’s competitive advantage is its physical network across India, especially given its focus on self-employed and rural borrowers. The company has branches in the remotest parts of the country, including Leh, Port Blair and Bhuj. “We operate in 26 states and seven union territories,” Kundu said.

Chola operates approximately 2,300 to 2,400 points of presence across the country for vehicle financing when branches and established locations are combined, with approximately 80% of these located in rural markets.

Approximately 700 points of this network operate mortgage and loan against property (LAP) business. Bringing mortgage products to branches that currently only handle auto loans could significantly accelerate growth; because even modest penetration in these places adds sizeable, longer-term assets to the ledger.

The company also aims to expand general branches. Chola follows a structured model for geographical expansion, first covering districts, then talukas and finally block-level places. Kundu notes that as repayment behavior improves, demand in small towns also increases.

“People in small towns want to expand and they want to take out loans. Their ability to repay has improved. Bureau scores are increasing and new customers taking out loans are decreasing,” he said.

A presence in this space enables faster acquisitions, tighter collection control, and more consistent asset quality in geographies where digital-only lenders often struggle with visibility and customer communication.

How does AI fit into Chola’s growth plans?

While its physical network is a core strength, Chola sees AI as the next layer shaping efficiency, underwriting and customer experience. Over the last 15 years, the company has moved from manual processes to a unified digital stack that includes disbursement, credit management, collections and CRM, all delivered via mobile devices.

The next step is to embed artificial intelligence into these journeys. “Artificial intelligence will actually help both our employees on assisted journeys and our customers on self-assisted journeys,” Kundu said.

AI is expected to streamline the onboarding process through instant Aadhaar and PAN-based verification and enable dealers to run fully guided sourcing flows. Artificial intelligence in insurance will provide real-time behavioral information. “AI can instantly tell you that this customer needs more collection follow-up or this customer needs a loan urgently,” he said. Faster feedback loops will help reduce credit losses and sharpen responses to early indicators of stress.

Kundu describes this evolution as a natural progression from physical processes to computerization, automation, digitalization and now artificial intelligence.

Kundu expects growth to continue at the same pace; This is a trend that broadly reflects what is happening in the NBFC sector. Agarwal expects NBFC performance to strengthen as macroeconomic conditions normalise. Second-hand vehicle financing has revived after a stagnant period and GST-related efficiencies continue to support commercial vehicle sales.

“The sector is well capitalized. Banks are willing to finance NBFCs. As macro improves, growth should also improve,” he said, noting that small LAP and home loans are seeing some stress in pockets of rural India.

Chola’s pivot to digital lending is best understood by looking at how its customer base has evolved. With a strong secured lending foundation, broad rural reach and growing investments in AI, the company is positioning itself for a future where digital lending is more disciplined, data-driven and aligned to the needs of the markets it serves.