NBFC vehicle-loan AUM to grow 16-17%, reach ₹11 trillion by FY27: Crisil

NBFCs' vehicle-loan AUM is seen growing 16-17 per cent annually through FY26-FY27 to Rs 11 trillion by March 31, 2027, with used-vehicle loans expected to outpace new loans, Crisil Ratings said

Assets under management (AUM) of vehicle loans of non-banking financial companies (NBFCs) will grow 16-17 per cent annually over the current and next financial year to Rs 11 trillion by March 31, 2027, said Crisil Ratings. The growth will be supported by policy measures and macroeconomic tailwinds. Meanwhile, sub-segments of vehicle loans will see differential growth trends; growth of used vehicle loans will continue to outpace that of new vehicle loans.

 

Why are used-vehicle loans expected to outpace new-vehicle loans?

 

Malvika Bhotika, director, Crisil Ratings, said, “Growth of used vehicle loans is expected to outpace that of new vehicle loans for most of the large NBFCs. Used vehicle loan AUM has clocked a compound annual growth rate of 15 per cent between FY20 and FY25, compared with 11 per cent for new vehicle loans.” 

She said the growth trend is expected to sustain over the medium term, as the unit economics of owning a used vehicle is lower than that of a new vehicle. Moreover, as financing of used vehicles provides better risk-adjusted returns, NBFCs are continuing to tap this segment. 

How will macro conditions and policy measures support vehicle finance growth?

 

The rating agency said the vehicle finance business is cyclical in nature and has a high correlation with macroeconomic trends. As GDP is expected to remain healthy next financial year too, at 6.7 per cent, the benefits of the recent rationalisation of the goods and services tax (GST) rates and lower systemic interest rates would propel growth of vehicle sales over the near to medium term.

 

Which vehicle-finance segments will grow faster, and which will lag?

 

Further, with cars and utility-vehicle (UV) financing growing faster compared with other segments, its share in vehicle finance AUM is expected to rise. On the other hand, while commercial vehicle (CV) financing will continue to dominate, its share will moderate on account of relatively lower growth. Besides, increasing formalisation is also driving growth of loans for used vehicles.

 

Rounak Agarwal, associate director, Crisil Ratings, said, “Cars and UV financing will maintain strong growth momentum at 23 per cent annually over this fiscal and the next, propelled by rising demand for entry-level models after the GST rationalisation and continuing preference for premium models.”

 

What is the outlook for commercial vehicles, two/three-wheelers and tractors?

 

Agarwal further said, “For CV financing, growth is expected at 11 per cent, supported by steady end-user industry growth and rise in lower-tonnage vehicle sales on account of high replacement demand.”

 

On the other hand, rural consumption demand and agricultural dynamics would drive growth of the two/three-wheeler and tractor segments. These segments will see steady AUM growth of 17 per cent and 12 per cent, respectively, given a healthy monsoon that would support farm incomes, said Agarwal.

 

Among the sub-segments, the market for used vehicle loans is more established for commercial vehicles. Meanwhile, the market for cars and utility vehicles is likely to pick up.