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India's Vehicle Loan Boom: How NBFCs Will Hit Rs 11 Lakh Crore by 2027

A new report paints a very positive picture for vehicle financing in India. Non-banking financial companies are expected to see their loan portfolios grow steadily over the next few years. Interestingly, the market for used vehicles is becoming a major growth engine, even outperforming new vehicle loans. This trend is supported by a strong economy and makes good business sense for the lenders involved.

Key Points: India NBFC Vehicle Loan AUM to Reach Rs 11 Lakh Crore by FY27

  • AUM projected to grow 16-17% annually, reaching Rs 11 lakh crore by March 2027
  • Used vehicle loan growth outpaces new vehicle financing significantly
  • Economic growth, GST rationalisation, and lower rates are key drivers
  • Used commercial vehicle loans are established, with cars and UVs gaining ground
3 min read

Vehicle loan AUM of India's NBFC to reach Rs 11 lakh crore by FY27: Report

Crisil report forecasts 16-17% annual growth for NBFC vehicle loans, driven by used vehicle financing and strong economic tailwinds.

"Growth of used vehicle loans is expected to outpace that of new vehicle loans for most of the large NBFCs. - Malvika Bhotika, Director, Crisil Ratings"

New Delhi, Dec 10

Assets under management (AUM) of vehicle loans at India's non-banking financial companies (NBFCs) is projected to grow at a steady 16-17 per cent annually over the current and next fiscals to Rs 11 lakh crore by the end of March in 2027, supported by policy measures and macroeconomic tailwinds, a report said on Wednesday.

While sub-segments of vehicle loans will see differential growth trends, the growth of used vehicle loans will continue to outpace that of new vehicle loans.

"The vehicle finance business is cyclical and has a high correlation with macroeconomic trends. For the record, India’s gross domestic product (GDP) is expected to grow 7 per cent this fiscal, up from the 6.5 per cent forecast earlier, after a faster-than-expected climb of 8.2 per cent in the second quarter," Crisil Ratings said in its report.

Meanwhile, growth is expected to remain healthy next fiscal, too, at 6.7 per cent.

India’s economic growth, along with the benefits of the recent rationalisation of the goods and services tax (GST) rates and lower systemic interest rates, should propel the growth of vehicle sales over the near to medium term, the report noted.

While the tailwinds will primarily drive sales of new vehicles and consequently their financing, continued focus on used vehicle loans by NBFCs will add to the traction.

“Growth of used vehicle loans is expected to outpace that of new vehicle loans for most of the large NBFCs. Our analysis indicates that their used vehicle loan AUM has clocked a compound annual growth rate of 15 per cent between fiscals 2020 and 2025, compared with 11 per cent for new vehicle loans," said Malvika Bhotika, Director, Crisil Ratings.

This growth trend is expected to sustain over the medium term, as the unit economics of owning a used vehicle are lower than those of a new vehicle.

Moreover, as financing of used vehicles provides better risk-adjusted returns, NBFCs are continuing to tap this segment, Bhotika added. Besides, increasing formalisation is also driving the growth of loans for used vehicles.

Among the sub-segments, while the market for used vehicle loans is more established for commercial vehicles (CVs), that for cars and utility vehicles (UVs) has gained ground over the past few years and is expected to gradually pick up for others as well, the report highlighted.

The overall sub-segmental growth will, thus, be an interplay of demand and supply for both new and used-vehicle loans, said the report.

- IANS

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Reader Comments

P
Priyanka N
While the growth numbers look impressive, I hope NBFCs are also focusing on responsible lending. We've seen cases of over-leverage in the past. Easy loans are good, but financial literacy for borrowers is equally important.
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Aman W
Used vehicle market booming makes perfect sense. With new car prices going through the roof, a second-hand SUV or sedan is the only practical option for many families. Financiers are finally catching up to this reality.
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Sarah B
Interesting to see the correlation with GDP growth. It's a classic indicator of economic health. The 16-17% projection seems ambitious but achievable if the macroeconomic tailwinds continue. Good analysis by CRISIL.
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Karthik V
As a small business owner, I can confirm the demand for used commercial vehicles is huge. The formalisation of loans for them is a big help. Earlier it was all informal money lenders with high interest. This growth is real and needed.
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Nikhil C
Hope this growth is inclusive and reaches tier 2 and 3 cities as well. The real economic story is being written there. Also, with more vehicles, we need to seriously invest in our road infrastructure and public transport to avoid complete gridlock!

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