Two-Wheeler Loan Boom: NBFCs Set for 18-19% Growth Amid Rising Costs

The average loan amount in the 2W segment has seen a notable rise—from Rs 86,111 in FY21 to Rs 1,14,929 in FY25.

This upward trend is attributed to inflation-driven raw material cost hikes, increased vehicle ownership expenses following the implementation of OBD-II Phase-B norms, and a rising consumer inclination toward higher cubic capacity two-wheelers, indicating a shift toward premiumisation, according to a report from CareEdge Ratings.

The 2W retail domestic industry is expected to report a sales growth of approximately 6-7 per cent in FY26.

While the high base of FY25 and the rollout of OBD-II Phase-B emission norms may temper the pace slightly, the overall sectoral outlook remains strong post GST cuts in September 2025.

The report estimated that the credit costs for the 2W portfolio in FY26 to remain in the range of 3.9 to 4.1 per cent, and NBFCs should continue their cautious stance with more focus on selective underwriting of better-quality customers.

Two-wheeler (2W) retail sales grew at a 10 per cent CAGR over three years between FY21 to FY24. However, the growth slowed to 8 per cent in FY25, led by a high base effect, weak rural sentiments, and cautious lending by NBFCs.

Overall, NBFCs dominate the 2W finance market with a 68.5 per cent share in FY25, driven by targeted segmentation of untapped, higher-yield borrowers and captive NBFCs leveraging synergies with parent companies.

"We expect FY26 growth to remain similar to FY25 levels of 18-19 per cent, reflecting a measured approach by financiers. The NBFC 2W finance portfolio grew at a 22 per cent CAGR over four years between FY21 to FY25, reaching Rs 1,12,751 crores by March 31, 2025," said Sanjay Agarwal, Senior Director – BFSI, CareEdge Ratings.

Growth moderated to 18 per cent in FY25 owing to financiers adopting a cautious approach in the wake of a general rise in asset quality stress, he added.

According to the report, the 2W financing market has grown at a CAGR of 16 per cent since 2021, touching Rs 1.64 lakh crore as on March 31, 2025.

NBFCs have continued to dominate the 2W financing market while both public and private sector banks have seen a decline in their share.

"NBFCs cater to this segment by serving underbanked markets through faster underwriting and disbursement. Despite 2W loans being secured, customers usually provide minimal documentation and are often new to credit," the report noted.

- IANS