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Auto NBFCs See Strong Q3 Growth, Rural Demand Boost to Continue in Q4

Auto-focused NBFCs recorded strong growth in Q3FY26, supported by improving demand for commercial and passenger vehicles alongside a pickup in rural markets. The sector's performance was bolstered by stable profitability and healthy net interest margins, with the benefit of repo rate cuts accruing during the quarter. Asset quality metrics showed steady improvement, leading to a sequential decline in credit costs. The positive traction across segments is expected to continue into Q4FY26, driven by sustained demand recovery and stable operating performance.

Key Points: Auto NBFC Growth Supported by Vehicle, Rural Demand: Report

  • Steady 16% YoY AUM growth in Q3
  • Disbursement momentum strengthened meaningfully
  • Profitability stable with healthy net interest margins
  • Asset quality shows steady improvement
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Improving Vehicle and rural demand to support Auto NBFC growth in Q4FY26: Report

A report highlights strong Q3FY26 growth for auto NBFCs, driven by improved vehicle demand and rural pickup, with positive momentum expected to continue into Q4.

"improving PV demand due to GST rate cut, along with a pickup in rural markets, supported tractor performance - Centrum Institutional Research Report"

Mumbai, February 13

Improving demand for commercial vehicles and passenger vehicles, along with better fleet utilisation, supported growth in vehicle finance portfolios of auto-focused non-banking financial companies in Q3FY26, and this momentum is likely to continue into the fourth quarter, according to a report by Centrum Institutional Research.

The report noted that a pickup in rural markets and improved passenger vehicle demand, aided by the GST rate cut, also helped boost tractor financing performance during the quarter. With demand conditions turning favourable across segments, the sector is expected to carry forward the positive traction into Q4FY26.

It stated "improving PV demand due to GST rate cut, along with a pickup in rural markets, supported tractor performance during the quarter, and this momentum is likely to continue into Q4FY26".

Auto-focused NBFCs delivered a steady Q3FY26 performance, recording average assets under management (AUM) growth of around 16 per cent year-on-year and 4 per cent quarter-on-quarter. Disbursement momentum strengthened meaningfully during the quarter following a softer Q2FY26, largely driven by core vehicle financing businesses.

The report mentioned that the profitability indicators remained stable, with net interest margins (NIMs) staying healthy across the auto finance space. The benefit of repo rate cuts largely accrued during the quarter, supporting margins.

While operating expenses were elevated due to higher disbursement volumes and the one-off impact of the new labour code, overall earnings trends remained supported by stable spreads and improving asset quality.

Credit costs declined sequentially, reflecting better collection efficiencies and improving asset quality trends. The report highlighted that asset quality metrics have shown steady improvement, providing comfort on the risk front.

Looking ahead to Q4FY26, the report expects continued support from improving PV demand, sustained traction in rural markets and healthy tractor performance. The strengthening in core vehicle financing segments, combined with stable margins and moderating credit costs, is likely to keep growth momentum intact.

Overall, the sector's outlook for Q4FY26 remains positive, supported by sustained demand recovery, improving credit trends and stable operating performance.

- ANI

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Reader Comments

P
Priya S
Good to see NBFCs performing well, but I hope this growth is inclusive. The report mentions rural pickup, but are small farmers and truck owners in villages really getting access to easy credit? Sometimes these reports look good on paper but the ground reality is different.
A
Aman W
As someone from a semi-urban area, I can confirm the demand is real. After a couple of slow years, people are finally upgrading vehicles. The repo rate cuts have definitely made EMIs more manageable. Hope this momentum continues!
S
Sarah B
Stable asset quality is the key takeaway for me. After the stress in the sector a few years ago, it's reassuring to see better collection efficiency and lower credit costs. This makes the entire financial system more resilient.
V
Vikram M
The link between good monsoon, rural income, and tractor sales is classic Indian economics playing out. When villages do well, the auto sector gets a boost. This is a positive cycle we need to sustain. 🚜
K
Karthik V
While the report is optimistic, the mention of elevated operating expenses due to the new labour code is a point to watch. It's important that growth is not achieved by cutting corners on employee welfare. Sustainable growth needs to be fair for all stakeholders.

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