Vehicle financing to reach Rs 8 lakh crore in next fiscal

Pune: The vehicle financing assets managed by non-banking finance companies (NBFC) would rise to Rs 8.1 lakh crore by March 31, 2025, CRISIL Ratings, the credit rating agency said on Thursday.

This projection indicates a substantial increase from the Rs 5.9 lakh crore recorded as of March 31, 2023, with a compound annual growth rate (CAGR) of approximately 17 per cent.

Asset quality will continue to improve, too, amidst sustained macroeconomic activity.

Consequently, profitability will remain stable, buoyed by declining credit costs, even as higher borrowing costs over the past few quarters could compress net interest margin (NIM).

CRISIL said growth will be driven by rising demand for commercial vehicles (CVs), cars, utility vehicles (UVs), and two-/three wheelers, accompanied by bigger ticket financing and the government’s focus on infra spending.

CVs hold the lion’s share in vehicle financing assets under management, constituting around 50 per cent as on March 31, 2023, followed by cars/UVs at 29 per cent, two-/three-wheelers at 11 per cent and tractors at 10 per cent.

“CV finance is seen growing 12-14 per cent per annum over fiscals 2023-25, propelled by growth in end-user industries such as cement, steel and consumer durables,” said Ajit Velonie, Senior Director, CRISIL Ratings.

“Financing of cars/UVs and two-/three-wheelers will also see robust growth of 23-25 per cent per annum because of rising sales of premium models and the large-scale replacement volume expected for two-wheelers.”

Financing of tractors, however, will grow at a relatively moderate pace of 8-10 per cent per annum following an uneven monsoon,” Velonie pointed out.

The AUM growth has also been fuelled by used vehicle financing as increasing prices of new vehicles spur demand for used ones.

Consequently, the share of used-vehicle financing rose to about 40 per cent from about 33 per cent in the past four years, the credit rating agency said.