New Delhi, Jan 14 (NationPress) The vehicle financing assets under management (AUM) in India is projected to reach Rs 9.4 lakh crore by the end of the upcoming fiscal year (FY26), with a compound annual growth rate (CAGR) of 15-16 percent for this fiscal and the next, as noted in a report released on Tuesday.

The persistent demand for used vehicles and the trend towards premiumization, alongside stable asset sales in commercial vehicles (CVs), cars, and utility vehicles (UVs), will bolster the growth of vehicle financing, according to the analysis by Crisil Ratings.

Rounak Agarwal, Associate Director at Crisil Ratings, indicated that the recent adjustment in goods and services tax (GST) rates on profits from the sale of used vehicles would increase ownership costs for borrowers utilizing such financing. Nonetheless, these costs will remain significantly lower than those for new vehicles, thereby sustaining the overall growth in vehicle financing.

As an asset category, vehicle financing is cyclical and influenced by macroeconomic factors, including gross domestic product (GDP) growth and monsoon patterns.

Non-bank vehicle financiers have increasingly concentrated on financing used vehicles, as evidenced by an 800 basis points (bps) rise in the share of this segment's AUM to 41 percent between fiscal years 2019 and 2024.

“In the medium term, this trend, combined with a growing preference for premium vehicles, will drive the expansion of vehicle financing,” the report highlighted, asserting that this segment will remain a leading asset class for the non-banking financial companies (NBFCs) sector, holding a 22 percent share of the sector's AUM.

Malvika Bhotika, Director at Crisil Ratings, projected that vehicle financing will achieve annual growth rates of 15-16 percent in this fiscal and the following one, although the dynamics will vary across sub-segments.

“CV financing, which represents nearly half of the vehicle financing market, is expected to grow at 11-12 percent per year, driven by demand for used CVs and higher-tonnage vehicles,” Bhotika explained.

Meanwhile, financing for cars and UVs, which constitute a quarter of the segment, is anticipated to grow at 22-23 percent due to the ongoing preference for premium cars and UVs.

“The proportion of UVs in overall domestic car sales has surged to 65 percent from approximately 30 percent five years ago,” Bhotika noted.

The remaining segments, including two- and three-wheelers as well as tractors, which together account for another quarter of the AUM, are also expected to experience robust growth.

While the revival of demand in rural regions will encourage growth in two-wheeler financing, favorable monsoon conditions and the anticipated improvement in agricultural yields will bolster tractor financing, as highlighted in the report.