New Delhi, Dec 10 Assets under management (AUM) of vehicle loans at India's non-banking financial companies (NBFCs) is projected to grow at a steady 16-17 per cent annually over the current and next fiscals to Rs 11 lakh crore by the end of March in 2027, supported by policy measures and macroeconomic tailwinds, a report said on Wednesday.
While sub-segments of vehicle loans will see differential growth trends, the growth of used vehicle loans will continue to outpace that of new vehicle loans.
"The vehicle finance business is cyclical and has a high correlation with macroeconomic trends. For the record, India’s gross domestic product (GDP) is expected to grow 7 per cent this fiscal, up from the 6.5 per cent forecast earlier, after a faster-than-expected climb of 8.2 per cent in the second quarter," Crisil Ratings said in its report.
Meanwhile, growth is expected to remain healthy next fiscal, too, at 6.7 per cent.
India’s economic growth, along with the benefits of the recent rationalisation of the goods and services tax (GST) rates and lower systemic interest rates, should propel the growth of vehicle sales over the near to medium term, the report noted.
While the tailwinds will primarily drive sales of new vehicles and consequently their financing, continued focus on used vehicle loans by NBFCs will add to the traction.
“Growth of used vehicle loans is expected to outpace that of new vehicle loans for most of the large NBFCs. Our analysis indicates that their used vehicle loan AUM has clocked a compound annual growth rate of 15 per cent between fiscals 2020 and 2025, compared with 11 per cent for new vehicle loans," said Malvika Bhotika, Director, Crisil Ratings.
This growth trend is expected to sustain over the medium term, as the unit economics of owning a used vehicle are lower than those of a new vehicle.
Moreover, as financing of used vehicles provides better risk-adjusted returns, NBFCs are continuing to tap this segment, Bhotika added. Besides, increasing formalisation is also driving the growth of loans for used vehicles.
Among the sub-segments, while the market for used vehicle loans is more established for commercial vehicles (CVs), that for cars and utility vehicles (UVs) has gained ground over the past few years and is expected to gradually pick up for others as well, the report highlighted.
The overall sub-segmental growth will, thus, be an interplay of demand and supply for both new and used-vehicle loans, said the report.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor