Vehicle finance assets under management (AUM) in India are expected to reach Rs 9.4 lakh crore by FY26, with a strong annual growth rate of 15-16% for this fiscal year and the next. This growth is supported by consistent demand for used vehicles, a shift towards premium options, and steady sales in the commercial vehicle (CV), car, and utility vehicle (UV) markets.
Growing Demand for Used Vehicles and Premium Options
The rise in demand for second-hand vehicles, particularly in the commercial and personal transportation sectors, is a key driver of vehicle finance growth in India. As more consumers turn to used vehicles for affordability and value, financing options for these vehicles are gaining traction. Additionally, the increasing preference for premium vehicles among buyers, especially in the car and UV segments, is further fueling the market's expansion.
Impact of GST Revision on Used Vehicle Financing
Recent revisions in the Goods and Services Tax (GST) rates on the profit made from used vehicle sales may slightly increase the cost of ownership for borrowers. However, Rounak Agarwal, Associate Director at Crisil Ratings, states that while this adjustment will raise the cost for borrowers opting for used vehicle financing, the overall cost will still remain considerably lower than that of new vehicles. This means that the financing growth for used vehicles will continue to be strong despite the price hike. The demand for second-hand vehicles remains resilient, ensuring sustained growth in the sector.
Non-Banking Financial Companies (NBFCs) Lead the Way in Financing Growth
Non-bank vehicle financiers are increasingly focusing on used vehicle financing. As a result, their share of the vehicle finance market has increased by 800 basis points (bps), now accounting for 41% of the segment's AUM between FY2019 and FY2024. This shift, along with the growing preference for premium vehicles, positions vehicle financing as one of the leading asset classes in the NBFC sector, contributing to 22% of the sector's total AUM.
Vehicle finance is expected to grow at 15-16% annually, with specific segments such as commercial vehicle (CV) financing seeing an 11-12% growth, driven by the demand for used CVs and higher-tonnage vehicles. Financing for cars and UVs, which make up about a quarter of the segment, should grow at a robust 22-23% due to a shift toward premium models and a significant increase in the market share of UVs.
Rural Demand to Boost Two-Wheeler and Tractor Financing
The revival of demand in rural areas is expected to drive growth in the financing of two-wheelers. The anticipated agricultural growth, aided by good monsoon seasons, will also boost tractor financing, contributing to the overall growth of the vehicle finance sector.
This positive outlook for vehicle finance AUM, particularly in used vehicles and premium segments, reflects the resilience of the market and its potential to thrive in the coming years.