Chola reboots digital lending—this time on its own terms

After scaling back its fintech-partner model in 2024 and eventually stopping it entirely due to compliance complexity, governance concerns and the impact of small-ticket lending 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 stabilising under tighter regulation and mature underwriting practices.

“We discontinued digital lending through fintech partners for the time being,” chief executive Ravindra Kumar Kundu told Mint. “That partnership business was reduced because the regulated entity has to monitor the performance of those 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 Directions, 2025, tightened norms around balance-sheet responsibility, data use and first-loss default guarantees. The result has been a cleanup of practices that had fueled a boom in small-ticket loans, but also led to rising distress.

“Digital lending has seen a lot of regulatory cleansing in the last three to four years,” said Sanjay Agarwal, senior director at CareEdge Ratings. “Earlier, small-ticket, short-tenure digital loans, as low as ₹500 to ₹10,000, had become the largest problem area because borrowers often could not repay and impulsive borrowing was common. But the industry has used the last 12 to 18 months to correct its practices and is now achieving a level of maturity.”

Digital strategy

Chola’s earlier digital lending book had expanded rapidly through fintech partners, reaching ₹500 crore a month. The current model follows a curated approach, offering digital loans only to existing customers who have completed at least one full loan cycle. Eligible customers receive personalised WhatsApp-based links to complete the credit journey digitally.

“We have not opened up this channel to the open public,” Kundu said. “We are offering this only to our existing customers. We have learnt from our experience and want to maintain both quality and growth. Therefore, we are moving slowly, but the business has potential to grow very large.” The new model disburses ₹75 crore to ₹100 crore a month, with ticket sizes between ₹1 lakh and ₹2 lakh.

Personal loans and digital lending often overlap in the industry because many personal loans today are originated digitally. “Digital lending is usually unsecured personal lending with a fully digital journey. Secured loans may involve more traditional underwriting. The reporting difference comes from the origination model and regulatory structure,” said Agarwal.

For Chola, the controlled re-entry into digital lending is part of a broader diversification strategy. The company remains focused on secured lending but sees digital origination, AI-driven underwriting and consumer credit as areas that will gain importance over the coming decade.

Portfolio mix and consumer behaviour

Vehicle finance remains Chola’s largest business, accounting for around 54% of the loan book. While some news reports suggested that the company was looking to reduce this share to less than 50%, Kundu clarified that this was not the intent.

“We do not want to reduce vehicle finance from 54% to 50% or 45%. The mix changes automatically because these assets behave differently,” he said. Vehicle loans amortise quickly over two to four years, while mortgage-backed products stay on the books for seven to 12 years.

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 finance and mortgage, its share is likely to stay around 10% because these are small-ticket, short-tenor products that run down quickly.

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

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

Chola’s diversified approach has supported strong performance. In FY25, the company reported total income of ₹28,116 crore, a 22% increase over FY2024. Net income rose to ₹14,583 crore, also up 22%, while profit after tax stood at ₹4,372 crore, reflecting 26% growth. Total AUM crossed ₹2 trillion as of March 2025, expanding 27% year-on-year.

Momentum continued in the first half of FY2026. Net income rose 27% year-on-year to ₹7,939 crore, while PAT increased 20% to ₹2,291 crore. AUM reached about ₹2.15 trillion by September 2025, 21% higher than the previous year. Chola has a customer base of over 43 lakh.

The on-ground advantage

A significant pillar of Chola’s competitive edge is the physical network it has built across India, especially given its focus on self-employed and rural borrowers. The company has branches in some of 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 roughly 2,300 to 2,400 points of presence across the country for vehicle finance when branches and resident locations are combined, with about 80% of them in rural markets.

Of this network, around 700 locations handle the mortgage and loan against property (LAP) business. Bringing mortgage products into branches that currently handle only vehicle loans can materially accelerate growth, since even modest penetration in these locations adds sizable, longer-duration assets to the book.

The company is also aiming for overall branch expansion. Chola follows a structured model for geographic expansion, first covering districts, then talukas and eventually block-level locations. Kundu notes that demand in smaller towns is rising as repayment behaviour improves.

“People in small towns want to grow and they want to take loans. Their repayment capability has improved. Bureau scores are improving and new-to-credit customers are coming down,” he said.

This on-ground presence enables faster acquisition, tighter collection oversight and more stable asset quality in geographies where digital-only lenders often struggle for visibility and customer contact.

How AI fits into Chola’s growth plans

While its physical network is a core strength, Chola sees artificial intelligence as the next layer shaping efficiency, underwriting and customer experience. Over the past 15 years, the company has moved from manual processes to a unified digital stack covering origination, loan management, collections and CRM, all deployed through mobile devices.

The next step is embedding AI across these journeys. “AI will actually help both our people who are running assisted journeys and the customers in the self-assisted journey,” Kundu said.

AI is expected to streamline onboarding through instant Aadhaar and PAN-based verification and enable dealerships to run fully guided origination flows. In underwriting, AI will deliver real-time behavioural insights. “AI can instantly say this customer requires more follow-up of collection or this customer requires a loan immediately,” he said. Faster feedback loops should help reduce credit losses and sharpen responses to early stress indicators.

Kundu describes this evolution as a natural progression from physical processes to computerisation, automation, digitalisation and now AI.

Kundu expects growth to continue at the same pace, a trajectory that broadly reflects what is playing out across the NBFC sector. Agarwal expects NBFC performance to strengthen as macroeconomic conditions normalise. Used-vehicle financing has revived after a subdued period, and GST-related efficiencies continue to support commercial vehicle sales.

“The industry is well capitalised. Banks are willing to fund NBFCs. Growth should improve as the macro improves,” he said, while cautioning that small-ticket LAP and home loans have seen some stress in pockets of rural India.

Chola’s return to digital lending is best understood through the lens of how its customer base is evolving. With a strong secured-lending foundation, deep rural reach and rising AI investments, the company is positioning itself for a future in which digital lending is more disciplined, data-driven and attuned to the needs of the markets it serves.