New Delhi, Oct 27 (NationPress) The Assets under Management (AUM) of Non-Banking Financial Companies (NBFCs) in the two-wheeler (2W) segment is projected to increase by 18-19% during this financial year (FY26), according to a report released on Monday.

The average loan amount in the 2W category has experienced a significant rise, escalating from Rs 86,111 in FY21 to Rs 1,14,929 in FY25.

This upward trajectory is largely attributed to inflation-driven increases in raw material costs, heightened vehicle ownership expenses due to the implementation of OBD-II Phase-B norms, and an increasing consumer preference for higher cubic capacity two-wheelers, signaling a trend towards premiumization, as indicated in a report by CareEdge Ratings.

The domestic retail industry for 2W is anticipated to witness a sales growth of about 6-7% in FY26.

Despite the high base of FY25 and the introduction of OBD-II Phase-B emission standards potentially moderating growth slightly, the overall sector outlook remains optimistic following the GST cuts in September 2025.

The report predicts that credit costs for the 2W portfolio in FY26 will remain between 3.9% to 4.1%, urging NBFCs to maintain a cautious approach and focus on selective underwriting of quality customers.

Retail sales of two-wheelers grew at a 10% CAGR from FY21 to FY24, but growth slowed to 8% in FY25 due to a high base effect, weak rural sentiment, and cautious lending practices by NBFCs.

As of FY25, NBFCs command a dominant 68.5% share of the 2W finance market, capitalizing on targeted segmentation of untapped, high-yield borrowers and leveraging synergies with parent companies.

According to Sanjay Agarwal, Senior Director – BFSI at CareEdge Ratings, "We anticipate FY26 growth will mirror FY25 levels of 18-19%, reflecting a measured approach from financiers. The NBFC 2W finance portfolio achieved a 22% CAGR over four years from FY21 to FY25, reaching Rs 1,12,751 crores by March 31, 2025."

Growth moderated to 18% in FY25 due to financiers adopting a cautious stance amid a general rise in asset quality stress, he elaborated.

The 2W financing market has expanded at a CAGR of 16% since 2021, reaching Rs 1.64 lakh crore as of March 31, 2025.

NBFCs continue to dominate the 2W financing sector, while both public and private sector banks have seen their market share decline.

The report highlighted that NBFCs meet the needs of this segment by servicing underbanked markets with quicker underwriting and disbursement processes. Although 2W loans are secured, customers typically provide minimal documentation and are often new to credit.