COMPANY OVERVIEW

Cholamandalam Financial Holdings Limited (‘CFHL’) is primarily an investment company, holding investments in its subsidiary / associate / joint venture and other group companies. 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. The RBI vide its notification dated October 22, 2021 had introduced an integrated regulatory framework for NBFCs under “Scale Based Regulation (‘SBR’):A Revised Regulatory Framework for NBFCs”. The SBR framework encompasses different facets of regulation of NBFCs covering capital requirements, governance standards, prudential regulation, etc. Under the SBR framework, NBFCs are divided into four layers viz., top layer, upper layer, middle layer and base layer based on the size, activity and perceived riskiness. The Company being a CIC falls under the category of Middle Layer NBFC (‘NBFC-ML’).

CFHL holds substantial investments in the following financial services / risk management companies of the Murugappa Group (hereinafter collectively referred as ‘the group companies’).

• Cholamandalam Investment and Finance Company Limited (‘CIFCL’), a non-banking finance company engaged in lending business offers vehicle finance, home loans, loan against property, SME loans, secured business and personal loans (SBPL), consumer & small enterprises loans (CSEL) and a variety of other financial services to customers;

• Cholamandalam MS General Insurance Company Limited (‘CMSGICL’), engaged in general insurance business offers a wide range of insurance products that include Motor, Health, Property, Accident, Engineering, Liability, Marine, Travel and Crop insurance for individuals and corporates;

• Cholamandalam MS Risk Services Limited (‘CMSRSL’) offers comprehensive Risk Management and Engineering solutions.

MACRO ECONOMIC ENVIRONMENT

The global economy has been through a series of significant shocks over the past couple of years. The year 2022 started off with geopolitical tensions and the consequential inflationary pressures triggered a pervasive slowdown in several economies. Global inflation continued to rise significantly leading to a cost-of-living crisis in many regions across the world. The impact of tighter monetary policies was felt across the economy, particularly on private investment besides affecting global output causing risks to food and energy, security and other significant changes in commodity markets. Though in the interim, the economy saw some relief, uncertainties continue to undermine the confidence among consumers. Further challenges to the global economic growth include China’s recovery of private consumption, tight labour markets in many countries and the deterioration in China-U.S. relations threatening international trade and policy co-operation. Against this backdrop, analysts have projected the global economic growth to remain at low trend rates of 2.6% in 2023 and 2.9% in 2024.

Despite the global slow down, Indian economy demonstrated resilience during FY 23. The economy driven by strong macro-economic fundamentals and domestic demand continues to be one of the fastest growing major economies. As per IMF reports, India is the fifth largest economy and is estimated to fare well in the medium term amongst large economies. The domestic GDP moderated in the second half year as evidenced from the macro-economic indicators. To augment the ongoing momentum, the Union Budget 2023-24 emphasised growth through capital expenditure, inclusive development and policy reforms. The initiatives taken by the Government to improve the disposable income of taxpayers in the country will aid in boosting consumption by an increase in discretionary spending. Further, the Government’s strong infrastructure push under the Prime Minister’s Gati Shakti scheme is expected to drive growth, investments, and job creation. Strong credit growth and resilience in financial markets are further expected to create an environment that supports investments.

Inflation in India remained high, averaging around 6.7% in FY 23 as compared to 5.3% in the same period last year. The RBI’s continual focus in controlling inflation led to a hike in policy repo rates quite a few times since May 2022. In response to the measures taken by RBI, the spurt in liquidity conditions that prevailed post pandemic moderated during the year in consonance with the changed monetary policy stance that focused on the withdrawal of accommodation. Overall, the domestic GDP growth in FY 23 is estimated at around 7% compared to 9.1% in the previous year.

In the above context, we look forward for a favourable economic environment in FY 24 backed by a robust domestic demand and supportive government initiatives. The economy is likely to witness an accelerated growth as investments kickstart the virtuous circle of job creation, income, productivity, demand and exports supported by favourable demographics in the medium term. However, external challenges such as geo-political conditions, global inflation, supply chain disruptions and tight monetary policy continue to be the downside risks that could impact the GDP growth.

SHARE CAPITAL

The paid-up equity share capital of CFHL as on March 31, 2023 was '18.78 Crore. During the year, 34,570 equity shares were allotted upon exercise of vested stock options by eligible option grantees under the Company’s Employees Stock Option Scheme 2016.

DIVIDEND

The Board of Directors have recommended a final dividend at the rate of 55% i.e., '0.55 per equity share of face value of '1/- each for the year ended March 31, 2023.

APPROPRIATIONS

The Company has transferred a sum of '11.58 Crore (previous year: '11.11 Crore) to Special Reserve under section 45-IC of the Reserve Bank of India Act, 1934.

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 23 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’) has 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 pandemic and global political conflicts. After challenging years, the NBFC industry has rebounded well in FY 23. The overall NBFC sector including Housing Finance Companies (‘HFCs’) benefited from resurgent domestic economic activity leading to strong momentum in disbursements and bolstering higher business growth backed by various policy initiatives of the Government and the regulators. The momentum is expected to continue in the current year also. The outlook for the industry remains positive as the country strides on its growth trajectory leading to higher credit demand. The growth in credit is expected to be broad based across products and segments with key risks being elevated interest rates and inflation.

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 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 31,2023.

At the industry level, commercial vehicles, passenger vehicles and two-wheelers registered double digit growth in FY 23 due to improvement in economic activity, revival of construction / mining activities and improvement in semiconductor supplies. The commercial vehicle industry is expected to deliver double digit growth in FY 24 driven by freight demand, replacement demand, structural economic recovery and higher infra spends by the Government. However, the increase in fuel prices and its impact on viability of fleet operators will remain a key challenge in FY 24. The domestic car and utility vehicle industry witnessed a 27% growth in FY 23 backed by strong underlying demand, easing of semiconductor supply and improvement in sale of utility vehicles due to shift in customer preferences. Steady demand is expected in FY 24 with double digit growth. The two-wheeler segment witnessed a 17% growth in FY 23 with improved demand sentiments over the previous year. This segment is expected to grow by 9 to 10% in FY 24 with the expectation of improved rural demand. The domestic tractor industry had a 12% growth in FY 23 supported by strong demand during the festive season, favourable monsoon and farm cash flows remaining stable. However, moderation in demand during FY 24 is expected due to uncertainties relating to monsoons. The domestic construction equipment industry witnessed a growth of 26% in FY 23 supported by improvement in the overall macroeconomic environment, a strong revival in construction activities and thrust on completion of infrastructure projects. Healthy volume pickup with the run up to elections augur well for this industry in FY 24.

The VF business of CIFCL disbursed '39,699 Crore in FY 23 as against '25,439 Crore in the previous year registering an impressive growth of 56% and profit before tax (‘PBT’) for the year was '2,272 Crore as against '2,054 Crore in the previous year. The business aims to improve the marginal yields across its segments considering the increase in borrowing rates and focus on driving higher disbursals in the high yield segments which will help in maintaining Net Income Margin (‘NIM’).

The company’s vast branch network helps in acquiring new customers and creates proximity with customers, helping in better collection efficiency and higher repeat business. The VF business will continue to expand and strengthen its existing relationships with customers, manufacturers, brokers, and dealers by utilizing new tools and platforms. Analytics based pre-approved loan offers are being generated for both new and existing customers which simplifies the loan origination journey leading to enhanced customer experience. The business with a robust collection mechanism, best-in-class credit underwriting, a strong risk assessment framework and an extensive penetration in the hinterland is expected to progress to the next level of growth in the coming year.

Loan against Property (‘LAP’)

In FY 23, Banks registered strong growth in the segment due to lower cost of funds and adequate liquidity support. The segment is expected to grow by 9-11% in fiscal 2024, driven by improved economic conditions assisting in normalisation of business activities.

Pan-India geographical penetration into new markets, introduction of localized credit policy in line with market developments, increased contribution from rural branches has led to the growth of CIFCL’s LAP business. The business continues to focus on a systematic approach to build a healthy portfolio mix, with more than 80% of portfolio secured by residential properties and an average loan ticket size of less than '50 Lakhs. The business has further introduced new high yield product like Small and Emerging Group (SEG) and Micro LAP to increase the profitability.

Assets Under Management (‘AUM’) for the business grew by 29% to '21,588 Crore (previous year: '16,795 Crore) and disbursements registered a growth of 68% to '9,299 Crore (previous year: '5,536 Crore).

Home Loans (‘HL’)

The Indian Housing Finance market is estimated to be about '26 lakh crore and grew at around 11-15% in FY 23. Credit growth in Banks outpaced that of HFCs/ NBFCs. In terms of ticket size, the sub '25 lakh segment contributed 29% of the disbursements during last FY and this level is expected to be sustained. Analysts expect the housing sector to grow 11-16% in FY 24 and affordable housing to grow at 18-22% in the same period.

As on March 31, 2023, CIFCL’s HL business had 70,182 live accounts (53% growth Y-o-Y) with an AUM of '8,451 Crore (51% growth Y-o-Y). 93% of this portfolio is from tier II, III, IV cities and towns. The disbursements grew by 102% Y-o-Y from '1,896 Crore in FY 22 to '3,830 Crore in FY 23.

Lower Middle-Income-Group customers continue to be the target group for HL business. The business has been strengthening the channel partner network to reach out to more customers. During the year, the HL business expanded its footprint in Northern / Eastern states besides expansion of its branch network further in states previously operational. Given that these customers are mostly first-time buyers, the sales officers guide and facilitate the customer through the entire borrowing process. The business has also developed a strong collections and legal recovery team across geographies to ensure that asset quality is maintained.

Consumer & Small Enterprise Loan (‘CSEL’)

As of March 31,2023, the CSEL business of CIFCL had crossed 5 lakh active customers with an AUM of '5,527 Crore. The division has entered strategic partnerships with leading fintech companies to drive greater financial inclusion, especially among those customers who are economically active but not having adequate access to formal credit. Overall disbursements of the division crossed '6,865 Crore and a PBT of '62 Crore in FY 23 with contribution from all zones in the country. The key strengths of the division such as its transparent end to end digital process, superlative customer experience journey, strong data driven underwriting & risk management capabilities combined with the trust of Chola brand makes it well placed to become a market leader in this segment.

Small and Medium Enterprises (‘SME’)

The progressive reforms introduced by the government for SME sector resurgence have been fruitful as reflected in the vigorous business activity. Demand for credit from the SME sector is high and supply by the credit industry remains stable while delinquencies have declined. The rapid pace of innovations driven by the government and the lending ecosystem has significantly enabled the SME sector to continue its high growth trajectory.

CIFCL’s SME finance disbursements during the year were at an all-time high of '6,388 Crore against '1,926 Crore in the previous year with a growth of 232%. The SME division was able to grow significantly by onboarding new OEMs, Anchor Tie-ups, Fintech partnerships and through branch expansion. AUM for the business grew by 235% to '3,550 Crore in FY 23 compared to '1,058 Crore in FY 22. SME Division will continue to focus on equipment finance, term loans and supply chain finance and also launch new product lines in the form of Health care financing, lease rental discounting, leasing finance, factoring and solar financing etc. The business has been strengthening the sourcing partners network to reach out to more customers.

Secured Business and Personal Loan (‘SBPL’)

Personal & Professional Loans is one of the fastest-growing segments in India. As per market research reports, disbursement growth in the personal loan space is expected to reach 18-20% in FY 24 due to a healthy credit demand. NBFC’s market share in terms of value in the personal loan space is currently at 21% and is expected to increase to 22% in FY 24. As per the reports, the business loan segment will see a growth of 15-18% in FY 24 ad NBFCs are expected to grow faster in this space.

As of March 31, 2023, CIFCL’s SBPL business had crossed 10,000 active accounts with an AUM of '444 Crore. The average ticket size was around '4.42 lakhs with average tenure of 69 months. The loans offered are predominantly business loans against self-occupied residential property.

Outlook

CIFCL will look to scale up through new product segments as well as improving efficiencies in existing segments. The company’s strong sales and collections combined with digital initiatives and branch reach will also support in improving efficiencies.

General Insurance Industry & Business Update

The general insurance industry was characterized by several regulatory changes that are favourable to the industry in terms of growth, adding business partners, securing Tier II capital etc. during FY 23. Effective April 1,2023 regulations relating to commission and expenses of management were amended with an aim to provide flexibility to the insurers in operational management and mandates insurers to conform to an overall capped expense level with in a period of three years. Other proposed regulatory changes relating to long term products, reinsurance, amendment to insurance act etc., is likely to enhance the operational scope of non-life insurers.

The Gross Direct Premium of multi-line non line insurers (excluding standalone health & specialised insurers), was reported at around '2,148 billion, a growth of around 16.2% over the previous year. Amongst the various lines of businesses, motor insurance registered a growth of 15.4% while the fire line of business grew by 11.1%. The growth in the health and personal accident lines for general insurers was 21.2% and 1.6% respectively. At the industry level, the market share of public sector companies was 38.6% with the private sector companies growing their share to 61.4%.

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 coverage including motor, travel, health, accident, home and other types of insurance for individual and corporate customers.

CMSGICL achieved a gross premium of '6,407 Crore, a growth of 23% which helped in growing its market share to 2.87% (among general insurance players). The company grew its business operations across

channel categories of bancassurance, agents/Point of sales person (POSP), brokers, Motor Insurance Service Provider (MISP). During the year, the company added to its channel partners by entering into new bancassurance agreements besides renewal of existing agreements. The company expanded its presence in automobile manufacturers and agency network which aided in improving its business dispersal across the country. The customer additions in FY 23 crossed 1 Crore and over 5.5 Lakh claims were serviced by the company during the year. The company also finalised its plans for technology transformation and data analytics for implementation in the following year. This exercise would help the company shift from it legacy systems platforms to a contemporary, customer-intermediary friendly transacting experience.

Motor Insurance

The motor insurance business registered a growth of over 26.8% during the year. The company stepped up the renewal ratio in the cars segment. The premium pricing in motor own-damage witnessed severe pressure with discounts across vehicle categories staying at higher levels. This has caused an adverse change in the motor OD claims ratios of all players in the industry. Corrective steps have been initiated by way of reduced discounts and reduced intermediation fees.

In motor third party, the marginal hike in pricing of third party premium effective June 2022 was inadequate to compensate for the inflation in medical costs as well as continuous increase of the minimum wage levels across all states in the country. The company continues to exercise utmost care in its choice of sub-segments and geographies.

Property and Casualty Insurance

The growth in premium from commercial lines of business was mainly driven by 33.4% growth in the fire insurance business. Marine and group accident lines of businesses also witnessed improved performance with increase in the levels of economic activity and focused sourcing. The miscellaneous lines of insurance business grew well during the year. The Company registered growth across its business verticals of Indian Commercial, SME, Japanese & Korean and Bancassurance. CMSGICL continues to follow disciplined underwriting and prudent risk selection in the highly demanding environment.

Health, Accident and Travel Insurance

The health, accident and travel insurance business grew by more than 35% during the year with stronger growth in retail health. Even as retail indemnity business continues to scale up, the bancassurance led health benefit and

accident product grew faster with the return of economic activity. New health products - both indemnity and benefit were added during the year besides stepping up on its distribution build of both POSP as well as channel partners. The company continues to strengthen its underwriting framework with intelligent use of technology for its risk selection, upsell and cross-sell initiatives.

Crop Insurance

In the context of the Expenses of Management Regulations and changes in the crop insurance space, CMSGICL has decided to participate in crop insurance schemes in FY 24 and has secured necessary reinsurance arrangements to re-enter the line of business.

Reinsurance (RI)

During the year the international markets witnessed absolute hardening due to natural catastrophes across the globe, sharp inflation and currency depreciation in Europe and the USA. Consequently, it resulted in reinsurers restricting capacity, moderating on commission levels and insisting on sharp price increases for balance sheet protection covers. The company’s proportional and non-proportional treaties generated surplus for the reinsurers during the year. The company has put in place new reinsurance arrangements in respect of its product offerings. Reinsurance renewal for FY 24 had challenges on cost of covers for catastrophe programs and the company successfully negotiated and completed the RI placements for FY 24 by diversifying the panel of reinsurers.

Claims functions

The year under review witnessed the claims management function stepping up speed of disposal while handling larger volumes with efficiency and productivity. The company continues its journey in digitisation of its claims processes across lines of businesses.

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 continues to be the focus area of CMSGICL.

Outlook

The general insurance industry bounced back after the two covid years in terms of growth and carries the optimism into FY 24 also. Headwinds for the industry include price reduction in property premium, higher inflation impacting consumer spends and claims costs, uncertainty over the revision in motor third party premium pricing, rise in reinsurance costs etc. Amongst

the tail winds are the anticipated growth in automobile sales, infrastructure spend thrust from the Government, expected credit offtake from the banks etc.

CMSGICL will continue to strengthen its growth path by addition of new channel partners, expansion into new markets, enhanced focus on renewals besides launching new products across lines of businesses. The company is committed to tighten its expense of management levels by a judicious mix of channels, product sub categories and rationalise commission structures linked to inherent profitability.

Digital / Technology Initiatives

Digital transformation continues to be the focus area of the group companies. Various initiatives and technology tools are deployed for automation of repetitive activities across functions wherever opportunity exists. The initiatives implemented by CMSGICL during the year include - launch of new mobile applications which enhances customer experience, enablement of digital platforms for new products, expansion of modes for claims intimation through IVRS and voice BOT enablement and revamp of CRM software to provide superior customer service.

With regard to our NBFC business, significant enhancements on the digital front have been put in place for new businesses - CSEL, SBPL and SME. Besides driving changes to external facing applications, CIFCL is also rigorously driving automation across different parts of the business and supporting functions. Further, the company is carrying out a key transformation of its data infrastructure and building an integrated data repository to serve business and compliance reporting as well as analytical needs. The businesses will continue its efforts around strong technology controls, secure development, structured technology & security operations for system availability, data sanctity, and appropriate and timely handling of security incidents.

Risk Management Services - 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. CMSRSL expanded its service offering in FY 23 by launching a number of strategic projects in the areas of ‘Behavioural Science Based Safety’ and ‘Alliance Water Stewardship’. Additions to the company’s order book during the year aggregates to '70 Crore and more than 325 assignments in the segment of process safety, 170 projects in electrical and 50 in environment studies were carried out

during the year. CMSRSL has strengthened its business relationship with strategic alliance partners and continues to serve Cholamandalam MS General Insurance through value-added services like Thermography, Safety Audits, and Cargo Loss Minimization studies. CMSRSL has crossed 375 resources mark, backed by a strong technical team of multidisciplinary and certified professionals having exposure to domestic and international markets. Our joint venture partner, Mitsui Sumitomo Insurance Company Limited, Japan, continues to support the business by introducing Japanese companies in the Indian market for risk management services.

FY 24 began with a strong order book of '61 Crore. The outlook for FY 24 includes expansion of its customer base through a targeted marketing and branding strategy in the domestic market and leveraging the customer base of its strategic alliance partners. Implementation of organizational restructuring that will enable the company to adapt to future requirements, entering new areas such as green hydrogen and supporting companies in the energy transition are some of the key initiatives planned in FY 24. The company will also focus on building its capabilities in the areas of net zero consulting with its Inogen partners and planning to become active in the ESG reporting market.

During the year the Company has not made any investments in its subsidiaries. There has been no change in the nature of business of the company and the group companies during the year. Business performance of the group companies has been furnished in earlier paragraphs of this report.

A report on the performance and financial position of each of the group 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. The 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 uploaded on the Company’s website, www.cholafhl.com. Annual accounts of the group companies will also be uploaded 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’).

FINANCIAL REVIEW - SUBSIDIARY / ASSOCIATE / JOINT VENTURE COMPANIES

CFHL earned an income of '83.76 Crore (previous year: '83.51 Crore) and profit before tax was '73.86 Crore (previous year: '70.74 Crore) for the financial year ended March 31, 2023. Aggregate investments stood at '1,280.12 Crore (previous year: '1,279.84 Crore) as on March 31, 2023. During the year, the Company repaid '50 Crore of Non-Convertible Debentures (‘NCDs’) and the outstanding NCDs as on March 31, 2023 was '50 Crore.

Cholamandalam Investment and Finance Company Limited (‘CIFCL’)

The Company holds 45.36% in the paid-up equity share capital of CIFCL as on March 31,2023 and has de-facto control as per the principles of Ind AS 110. Accordingly, CIFCL is treated as a subsidiary for the purpose of consolidation of financial statements. The securities of CIFCL are listed and traded on the National Stock Exchange of India Limited (NSE) and the BSE Limited (BSE).

The Assets under Management (‘AUM’) grew by 36% to '1,12,782 Crore as at March 31,2023 (previous year: '82,904 Crore). Loan disbursements aggregated to '66,532 Crore (previous year: '35,490 Crore) registering a growth of 87% during the year. Profit after tax grew by 24% to '2,666 Crore (previous year: '2,147 Crore). Investment portfolio of CIFCL as at end of FY 23 was '3,628 Crore including investments in government securities of '1,541 Crore.

The company maintained a comfortable ALM position with no negative cumulative mismatches across all time buckets. As at end of FY 23, the capital adequacy ratio stood at 17.13% as against the minimum regulatory requirement of 15%. During the year CIFCL raised CP aggregating to '15,800 Crore of which '14,250 Crore were repaid. Outstanding NCDs were '14,767 Crore and Tier II borrowings stood at '4,376 Crore as on March 31,2023.

CIFCL paid an interim dividend of '1.30 (65%) per equity share of face value of '2/- each for FY 23. The Board of CIFCL has recommended a final dividend of '0.70 (35%) per equity share for FY 23, 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 ' 51.54 Crore (previous year: '40.01 Crore) and profit before tax of '8.68 Crore (previous year: '7.48 Crore) for the year ended March 31, 2023 and the mutual fund AUM was '790.66 Crore as at March 31,2023.

CHFL recorded a gross income of '81.87 Crore (previous year: '56.37 Crore) and made a profit before tax of '7.66 Crore (previous year: '9.19 Crore) for the year ended March 31, 2023. Currently, the company continues its focus on growing insurance corporate agency business.

Payswiff recorded a gross consolidated income of '230.27 Crore and made a loss of '12.03 Crore (previous year: loss '42.51 Crore) for the year ended March 31, 2023. 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 '6,407 Crore in FY 23 (previous year: '5,194 Crore) and profit before tax was '211 Crore (previous year: '139 Crore).

The investment portfolio of CMSGICL grew to '14,271 Crore as at March 31, 2023 (previous year: '11,356 Crore). The company took advantage of the rising interest rate environment to deploy its accretion/maturing funds at higher yields. The exposure to Central and State Government securities stood at 65.1% of the investment assets (previous year 66.1%). As of March 31, 2023, the company had nil non-performing assets in its investment portfolio. The solvency ratio of CMSGICL as on March 31, 2023 was 2.01 times as against the minimum regulatory requirement 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 23.

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 '64.93 Crore (previous year: '59.69 Crore) and profit before tax of '9.19 Crore (previous year: '7.15 Crore) for the year ended March 31,

2023. The Board of CMSRSL has recommended a final dividend of 25% i.e., '2.50 per equity share of face value of '10/- each for FY 23.

DIRECTORS

Pursuant to section 149 and regulation 17(1C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘the SEBI Listing Regulations’), the appointment of Mr. K Balasubramanian (DIN : 00137260) as an Independent Director for a term of three (3) consecutive years with effect from March 17, 2022 till March 16, 2025 was approved by the shareholders by way of special resolution passed through postal ballot on May 17, 2022.

The shareholders at the 70^th AGM approved the appointment of Mr. B Ramaratnam (DIN: 07525213) as an Independent Director for a term of five consecutive years commencing from March 18, 2019 till March 17,

2024. In view of his current term coming to an end on March 17, 2024 and based on the recommendation of the Nomination and Remuneration Committee, the Board of Directors at their meeting held on May 12, 2023 recommended the re-appointment of Mr. Ramaratnam as an Independent Director for a second term of three consecutive years with effect from March 18, 2024 till March 17, 2027. In the opinion of the Board, Mr. Ramaratnam continues to fulfill the criteria of

independence prescribed in the Act and under the SEBI Listing Regulations for re-appointment as an Independent Director of the Company and that he is independent of the management. The Company has received a notice under section 160(1) of the Act from a member proposing his candidature at the ensuing AGM. Necessary resolution seeking shareholders’ approval for re-appointment of Mr. Ramaratnam as Independent Director on the Board, forms part of the Notice convening the 74^th AGM of the Company.

As per the provisions of section 152 of the Act, Mr. Vellayan Subbiah (DIN: 01138759) retires by rotation at the ensuing AGM and being eligible offered himself for re-appointment. The Board recommends the re-appointment of Mr. Subbiah as a director liable to retire by rotation and the resolution in this regard forms part of the Notice convening the 74^th AGM of the Company. Information as required to be disclosed under regulation 36(3) of the SEBI Listing Regulations, for re-appointment of directors is provided in the 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.

Mr. Ganesh was re-appointed as the Manager of the Company for a period of three years with effect from June 15, 2020. His tenure as Manager expires on June 14, 2023. Subject to the approval of shareholders, the Board at its meeting held on May 12, 2023 re-appointed Mr. N Ganesh as the Manager for a further period of three years with effect from June 15, 2023. Necessary resolution seeking shareholders’ approval forms part of the Notice convening the 74^th AGM of the Company.

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. M/s. S & T Associates have confirmed their eligibility to continue as auditors of the Company for FY 24.

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 31,2023.

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 31,2023.

Financial Ratios

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

The Company redeemed NCDs aggregating to '50 Crore during the year. Therefore, there is a decrease in debt equity ratio and leverage ratio. The increase in adjusted net-worth is on account of an 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’).

INTERNAL CONTROL SYSTEM AND INTERNAL AUDIT

Internal control system 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.

The internal audit is performed based on the audit plan approved by the Audit Committee annually. The internal audit report along with the observations and recommendations from the audit review are discussed and reviewed in the quarterly meetings of the Audit

Committee. The Audit Committee evaluates adequacy and effectiveness of the internal controls, performance of the internal audit, recommends improvements and reviews the action taken.

RISK MANAGEMENT

Risk management is a process to identify and manage threats that could have an impact on the operations of the Company. Generally, this involves reviewing business operations, identifying potential threats to the company and the likelihood of their occurrence and then taking appropriate actions to address the most likely threats. The Company adopts a systematic approach to mitigate risks associated with accomplishment of objectives, operations, revenues and regulations. The Company believes that this would ensure mitigating risks proactively and help to achieve stated objectives. The risk management framework of the Company comprises of the following key elements viz., a) Risk Assessment: study of threats and vulnerability and exposure to various risks; b) Risk Management and Monitoring: probability

of risk assumption is estimated and monitored; and

c) Risk Mitigation: measures adopted to mitigate risk by the Company.

The Risk Management Committee assists the Board in monitoring various risks, reviews and analyses 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. During the year the Risk Management Committee of the Board of CFHL reviewed key risk exposures of the Company along with mitigation measures, asset liability management, structural liquidity management besides review of key risk exposures and mitigation measures of its NBFC and general insurance businesses.

Key risk exposures of the Company along with risk mitigation measures are provided in the table below. The risks furnished below are not exhaustive and assessment of risk is based on management perception.

Further, risks arising out of NBFC and insurance businesses constitute the dominant risks of the Company on a consolidated basis. 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: clear understanding and identification of various risks, disciplined risk assessment by evaluating the probability and impact of each risk, measurement and monitoring of risks by establishing key risk indicators with thresholds for all critical risks and 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. Risk management activities of CMSGICL are aligned to its corporate objectives, organisational priorities and designed to protect and enhance its reputation.

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, 2023. 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 23. 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’)

With the enactment of Corporate Social Responsibility (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. Pursuant to the provisions of section 135(5) of the Act, every company shall spend at least two percentage of its average net profits

made during the three immediately preceding financial year in pursuance of its CSR Policy. The Company does not have CSR obligations for FY 23. Therefore, annual report on CSR activities as required under the Act is not attached to this Report.

RELATED PARTY TRANSACTIONS

The Company has formulated a policy on 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 interests of the Company at large. Pursuant to section 134(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014, there were no transactions during the year to be reported under section 188(1) of the Act in Form AOC-2. Necessary disclosures on related party transactions have been made in the notes to the financial statements. 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 group. CFHL along with its group companies has a work force of more than 14,400 employees as at March 31, 2023. The group companies have robust HR management practices enabling achievement of organizational goals and key milestones through people. The 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 31,2023, 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 III 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 either of 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 no options outstanding under either of the schemes 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, 34,570 equity shares were allotted under ESOP 2016 scheme.

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. and does not have any foreign exchange earnings. There was a foreign exchange outgo during the year by way of repatriation of dividend amounting to '0.31 Lakh (previous year: '0.31 Lakh).

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, regulation 22 of the SEBI Listing Regulations and the SBR regulations of RBI, the Company has established a whistleblower / vigil mechanism for directors and 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 formulated 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 calender year 2022 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, the Board appointed M/s. Srinidhi Sridharan & Associates, Practicing Company Secretaries, to conduct the secretarial audit for the year ended March 31,2023. The Report issued by the secretarial auditor in the prescribed form MR-3 is annexed to this Report as Annexure IV. The secretarial audit report does not contain any qualification, reservation or adverse remark by the secretarial auditor.

In compliance with 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 31,2023 is annexed to this Report as Annexure V.

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, 2023 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, 2023 and the date of this Report.

BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT

In terms of regulation 34(2)(f) of the SEBI Listing Regulations, annual report of top one thousand listed entities based on market capitalization, shall contain the Business Responsibility and Sustainability Report (‘BRSR’) describing the initiatives taken by the entity from an environmental, social and governance perspective. Accordingly, the Company has prepared BRSR, which indicates the Company’s performance against the principles of the National Guidelines on Responsible Business Conduct. A copy of the BRSR is annexed to this Report as Annexure VI.

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 reviewed by the Audit Committee and the Board and independently reviewed by the internal auditors, statutory auditors 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, 2023, 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 31,2023 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 31,2023; 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 31,2023.

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 12, 2023 DIN:00170478