Vehicle loan AUM for NBFCs to cross Rs 8 trillion in 2024-25: CRISIL

The growth in AUMs will be driven by rising demand for commercial vehicles, cars, utility vehicles, and two-/three-wheelers

The vehicle financing assets under management (AUM) for non-banking financial companies (NBFCs) is expected to touch Rs 8.1 trillion in 2024-25 from Rs 5.9 trillion in 2022-23, rating agency CRISIL said on Thursday. This will mark a compound annual growth rate of 17 per cent.

The growth in AUMs will be driven by rising demand for commercial vehicles (CVs), cars, utility vehicles (UVs), and two-/three-wheelers, accompanied by bigger ticket financing and the government's focus on infra spending, CRISIL said.

Currently, CVs hold the lion's share in vehicle financing AUM, constituting around 50 per cent as of March 31, 2023. It is followed by cars/UVs at 29 per cent, two- and three-wheelers at 11 per cent and tractors at 10 per cent.

"CV finance is seen growing 12-14 per cent per annum over 2023-25, propelled by growth in end-user industries such as cement, steel and consumer durables. Financing of cars/UVs and two-/three-wheelers will also see robust growth of 23-25 per cent per annum because of rising sales of premium models and the large-scale replacement volume expected for two-wheelers," said Ajit Velonie, senior director, CRISIL Ratings.

"Financing of tractors, however, will grow at a relatively moderate pace of 8-10 per cent per annum following an uneven monsoon."

The AUM growth has also been fuelled by used vehicle financing as increasing prices of new vehicles spur demand for used ones. "Consequently, the share of used-vehicle financing rose to 40 per cent from 33 per cent in the past four years, clocking a CAGR of 13 per cent vis-a-vis 4 per cent for new-vehicle financing during the period," the agency added.

CRISIL added that the asset quality will continue to improve, too, amidst sustained macroeconomic activity. Consequently, profitability will remain stable, buoyed by declining credit costs, even as higher borrowing costs over the past few quarters could compress the net interest margin.

"Given the strong correlation of asset quality with overall economic activity, the overall 90+ days past due should improve by 50 basis points to 4.2 per cent this fiscal and sustain at a similar level next fiscal," said Malvika Bhotika, director, CRISIL Ratings.

"While improvement is expected across segments, the tractor segment's asset quality will need to be watched closely, as it is contingent on monsoon patterns, agricultural yields, and rural activity."