Despite rumours of a plausible split between the promoter groups – the Murugappa Group and Developement Bank of Singapore (DBS) – over the way of doing business in difficult times, the Chennai-based non-banking finance company (NBFC) Cholamandalam DBS Finance Ltd (Chola DBS) is planning to raise a maximum of Rs 500 crore from the promoters to meet the statutory requirements including its capital adequacy ratio.

The board of directors of the NBFC had given the green signal for raising funds and had directed an in-house team to draw up the blueprint for raising funds.

Hit by the overall financial turmoil, the company had recently closed down 50 of its branches specialising in personal finance and related-businesses, since these branches were found as a drag on the company?s overall profitability. The move had sparked intense speculation that the marriage between the Murugappa group known for its conservative business attitude, and DBS which favours high-risk lines of businesses were on the rocks.

Talking to FE, a senior company official on conditions of anonimity said, ?As part of our business rationalisation, the company had to close down a few of its branches, which were non-profitable, bleeding and become unviable to continue. Following which, the company exited the consumer finance business in total, which constitutes 8% of the overall managed assets (approximately Rs 8,800 crore).?

To overcome the current crisis, the company has decided to augment its capital base further, thereby, increasing its disbursements and has subsequently announced plans to raise funds upto a maximum of Rs 500 crore, the official said. ?What we announced was an enabling resolution and the company does not require to raise the said Rs 500 crore,? he added.

While refusing to get into the exact details, the official said, ?One of the options for the company is to approach the promoters group – Murugappa as well as DBS of Singapore – to chip in the additional funds,? he said. The other option is to convert the short term loans into long term loans to ease pressure on its cash flow. The company raised short term loans at a higher cost, he added.

According to him, the domestic promoters had always helped Chola DBS as and when it required with funds. ?We hope they will help us to raise funds. Similarly, we will approach our foreign partner DBS for similar funds,? he said. He refused to divulge anything further as the company currently is involved in the fund raising exercise. The exact requirement and the mode of fund raising will be known only after a detailed discussion, he said. Both the promoters are holding close to 38% each in the company.

Recently, the company announced that its profits had taken a hit due to lesser than planned disbursements, higher cost of short term borrowings and on account of higher provisioning and losses in the small ticket consumer finance business. During the quarter, the company exited the consumer finance business and closed down 50 of its branches.

The company has already put in place a series of measures to contain the fall out by restructuring costs and tightening credit policies. The impact of these measures will be felt in the quarters ahead. However, the company has done better in other major businesses, such as vehicle finance, home equity loans and business finance, its traditional turfs.

The vehicle finance business grew its managed assets by 22% and operating profits by 48% during the current half year, as compared to same period last year.