Vehicle finance AUM in India to touch Rs 9.4 lakh cr through FY26, used vehicles’ sale to surge

New Delhi:  The vehicle finance assets under management (AUM) in India is expected to touch Rs 9.4 lakh crore through next fiscal (FY26) with a compound annual growth rate (CAGR) of 15-16 per cent for this fiscal and next, according to a report on Tuesday.

The continued demand for used vehicles and premiumisation, amid steady asset sales in the commercial vehicles (CVs), cars and utility vehicles (UVs) spaces, will support vehicle finance growth, said the report by Crisil Ratings.

Rounak Agarwal, Associate Director, Crisil Ratings, said the recent revision in the goods and services tax (GST) rates on the profit made on sale of used vehicles would raise the cost of ownership for borrowers availing of such financing, it will, nonetheless, be well below that for new vehicles and thus will continue to support overall vehicle financing growth.”

As an asset class, vehicle financing is cyclical and susceptible to macroeconomic factors, such as growth in gross domestic product (GDP) and monsoon trends.

The non-bank vehicle financiers have been focusing more on used vehicle financing — indicated in the increase in its share of the segment’s AUM by 800 basis points (bps) to 41 per cent between fiscals 2019 and 2024.

“Over the medium term, this, along with rising preference for premium vehicles, would drive growth of vehicle financing,” the report mentioned, adding that this segment will continue to be among the top asset classes for non-banking financial companies (NBFCs) sector. with a share of 22 per cent of the sectoral AUM.

According to Malvika Bhotika, Director, Crisil Ratings, vehicle financing should clock 15-16 per cent growth annually in this and next fiscals, but the dynamics will differ by sub-segment.

“CV finance, accounting for almost half of the vehicle financing, would grow 11-12 per cent per annum, driven by demand for used CVs and higher-tonnage vehicles,” said Bhotika.

Cars and UV financing ― accounting for a fourth of the segment ― should grow 22-23 per cent, because of continued preference for premium cars and UVs.

“The share of UVs in overall domestic car sales has risen sharply to 65 per cent now from around 30 per cent about five years back,” Bhotika informed.

The remaining segments — two- and three-wheelers and tractors collectively accounting for a fourth of the AUM — should also log healthy growth.

While demand revival in the rural areas will support two-wheeler financing growth, adequate monsoon and thus expectedly better agricultural yields will spur tractor financing, the report noted.

–IANS