New Delhi, Dec 10 (NationPress) The assets under management (AUM) for vehicle loans at India's non-banking financial companies (NBFCs) is expected to rise at a consistent rate of 16-17 percent annually over the current and subsequent fiscal years, reaching Rs 11 lakh crore by March 2027. This growth is bolstered by favorable policy measures and positive macroeconomic factors, according to a report released on Wednesday.

Different segments of vehicle loans will exhibit varied growth patterns, with the market for used vehicle loans projected to surpass that of new vehicle loans.

"The vehicle finance sector is inherently cyclical and closely tied to macroeconomic conditions. India's gross domestic product (GDP) is anticipated to expand by 7 percent this fiscal year, a revision from the earlier forecast of 6.5 percent, following a robust growth of 8.2 percent in the second quarter," noted Crisil Ratings in their report.

Furthermore, growth is expected to remain robust in the next fiscal year as well, at 6.7 percent.

The economic momentum in India, alongside the recent adjustments in goods and services tax (GST) rates and decreased systemic interest rates, is likely to fuel the growth in vehicle sales in the near to medium term, the report elaborated.

While these favorable conditions will primarily enhance new vehicle sales and their financing, ongoing attention to used vehicle loans by NBFCs will further contribute to this growth.

“Our analysis suggests that the growth rate for used vehicle loans will outstrip that of new vehicle loans for many major NBFCs. Between fiscal years 2020 and 2025, the AUM for used vehicle loans has achieved a compound annual growth rate of 15 percent, compared to 11 percent for new vehicle loans,” stated Malvika Bhotika, Director at Crisil Ratings.

This upward trend is expected to persist in the medium term, as the cost-effectiveness of owning a used vehicle is significantly lower compared to new vehicles.

Moreover, since financing for used vehicles offers better risk-adjusted returns, NBFCs are increasingly targeting this segment, Bhotika added. Additionally, the growing formalization of the market is also propelling the demand for used vehicle loans.

Among the various segments, the market for used vehicle loans is particularly well-established for commercial vehicles (CVs), while the sectors for cars and utility vehicles (UVs) have emerged stronger in recent years and are anticipated to gradually improve for other categories as well, as highlighted in the report.

Overall, the growth across sub-segments will be driven by both demand and supply dynamics for new and used vehicle loans, according to the report.