NBFC Vehicle Loans Expected to Reach Rs 11 Lakh Crore by March 2027: CRISIL

Non-banking financial companies (NBFCs) will see their vehicle loan assets under management (AUM) grow to approximately Rs 11 lakh crore by March 31, 2027, expanding at 16-17% annually over the current and next fiscals, driven by policy measures and favorable macroeconomic conditions, according to Crisil Ratings.

The growth will be led by used vehicle financing, which continues to outpace new vehicle loans across most large NBFCs. Analysis indicates that used vehicle loan AUM has registered a compound annual growth rate of approximately 15% between fiscals 2020 and 2025, compared with 11% for new vehicle loans.

"Growth of used vehicle loans is expected to outpace that of new vehicle loans for most of the large NBFCs," says Malvika Bhotika, Director, Crisil Ratings. "This growth trend is expected to sustain over the medium term, as unit economics of owning a used vehicle is lower than that of a new vehicle. Moreover, as financing of used vehicles provides better risk-adjusted returns, NBFCs are continuing to tap this segment."

The vehicle finance business demonstrates high correlation with macroeconomic trends. India's gross domestic product is expected to grow 7% this fiscal, up from the 6.5% forecast earlier, after recording 8.2% growth in the second quarter. Growth is expected to remain at 6.7% next fiscal.

Economic growth, combined with recent goods and services tax (GST) rate rationalization and lower systemic interest rates, is expected to drive vehicle sales over the near to medium term.

Among sub-segments, cars and utility vehicles (UV) financing will maintain the strongest growth momentum at approximately 23% annually over this fiscal and the next. This growth will be propelled by rising demand for entry-level models after GST rationalisation and continuing preference for premium models.

"For CV financing, growth is expected at ~11%, supported by steady end-user industry growth and rise in lower-tonnage vehicle sales on account of high replacement demand," says Rounak Agarwal, Associate Director, Crisil Ratings. "On the other hand, growth of the 2-3-wheelers and tractor segments are closely linked to rural consumption demand and agricultural dynamics. These segments will see steady AUM growth of ~17% and ~12%, respectively, given healthy monsoon that would support farm incomes."

Commercial vehicles (CV) financing will continue to dominate the vehicle finance portfolio, though its share will moderate due to relatively lower growth compared to other segments. The faster growth in cars and UV financing will increase its share in the overall vehicle finance AUM.

Increasing formalization is also supporting growth in used vehicle loans. While the used vehicle loan market is more established for commercial vehicles, the market for cars and utility vehicles has gained ground over the past few years and is expected to gradually expand to other segments.