Auto finance to rebound only by next fiscal mid: Cholamandalam Investment

Sees demand rising but no big bang, says multiple issues affecting disbursement growth such as second Covid wave and chip shortage

With longer waiting periods due to chip shortage and the Covid impact dampening auto sector sales, vehicle financing is expected to get back to the FY19 level only by the middle of next financial year, a senior executive of Cholamandalam Investment and Finance Company (CIFC) has said.

The Murugappa group company's disbursements declined 18 per cent decline in vehicle loan segment, from Rs 24,983 crore in FY19 to Rs 20,249 crore in 2020-21. The business contributes to 71 per cent of its assets under management. During the second quarter of the current financial year, vehicle finance disbursements rose 22 per cent to Rs 6,161 crore from Rs 4,781 crore a year go.

“We expect the demand to rise but will not come with a larger bang. There are multiple issues affecting the disbursement growth – the second wave of Covid had its impact and there are issues on the supply side as well (chip shortage). If there is no third wave, we will see traction with people coming out to buy more vehicle. By the second half of the next financial year we expect the demand to be back to the 2018-19 level,” said Arulselvan D, executive vice president and chief financial officer of CIFC. As on September 2021, assets under management of the company stood at Rs 75,063 crore as compared to Rs 74,471 crore during the same time last fiscal.

When asked about the changes that are expected to see based on the scale-based regulatory framework that the Reserve Bank of India (RBI) is expected to come up with, he said that it is not expecting much of a change from the current regulations. “They will have to communicate to us, which category they are putting us. Based on our size, we are likely to come in the upper layer segmentation. In the upper layer, we are expected to see only the current level of regulations that we are going through. There may be more frequent supervisory control and data collection,” he added.

Targeting the financial stability of NBFCs, the apex bank had proposed segregating larger entities and exposing them to a stricter set of “bank-like” rules. Based on the plan lined up, there is likely to be four layers – base layer, middle layer, upper layer, and a possible top layer. Base layer with non--deposit-taking non-systemically important players below the asset size of Rs 1,000 crore, middle layer with deposit-taking NBFCs and systemically important non-deposit-taking NBFCs and upper layer with top 25-30 significant NBFCs. The top-layer is expected to be empty for now.

He added that the company is also looking to focus more on segments like home loan, SMEs and loans against property in the longer run. He added that the plans to aggressively enter the electric three-wheeler is on track and will depend on how the market will evolve.