Banks are looking to expand their vehicle finance portfolios to capitalise on the improving demand for automobiles following the reduction in GST rates.
Before GST cuts, demand for automobiles had slowed, with the rise in bank credit for vehicle loans coming down to 8.7% in August, from 8.9% in July, according to the Reserve Bank of India’s sectoral deployment data.
The slowdown can primarily be attributed to lower demand, higher delinquencies and uncertain resale values in the electric vehicles segment. But with the GST rate rationalisation, bankers have turned optimistic on this segment as they believe the reforms have improved consumption as products become cheaper.
“As we look at the numbers, post September 22, demand has come back across most segments of our vehicle finance business. We anticipate that the growth over the next couple of quarters should be reasonably strong,” Rajiv Anand, MD and CEO of IndusInd Bank, said in the post-earnings media call. IndusInd Bank’s vehicle finance book grew 29% on year to Rs 96,208 crore as on September 30.
UCO Bank has expanded its direct selling agent engagement to attract younger generation, Ashwani Kumar, MD and CEO, said. The bank’s vehicle book grew 13.9% QoQ to Rs 6,014 crore as on September-end. On a yearly basis, the segment posted a huge growth of 72.9%.
Kotak Mahindra Bank reported a 12% year-on-year expansion in its commercial vehicles book. “We expect this enhanced kind of demand to stabilise. We are cautiously optimistic about growth and sales of new cars as well as second-hand ones in Q3 and Q4,” Ashok Vaswani, MD & CEO of Kotak Bank, said in the post-earnings call.
According to the Society of Indian Automobile Manufacturers (SIAM) data, sales of passenger vehicles stood at 1.04 million units in the second quarter, registering a decline of 1.5% compared to the year-ago period.
However, the segment showed signs of recovery towards the end of the quarter, with September sales rising 4.4%, aided by GST cuts.
The two-wheeler segment posted sales of 5.56 million units in Q2, registering a growth of 7.4% on year, and three-wheelers posted their highest-ever Q2 sales of 2.29 lakh units, growing at 9.8%. Commercial vehicle sales grew 8.3% on year to 240,000 units for the quarter ended September.
“While the industry remains watchful of geopolitical developments, the overall outlook for rest of the current financial year remains encouraging, with the sector expected to close FY26 on a positive growth trajectory,” SIAM said.
Apart from additional momentum from GST changes, banks’ increased focus on vehicle loans is a part of their move towards secured lending segments, said Anil Gupta, senior vice president and co-group head – financial sector ratings at ICRA. “This category has also become more attractive due to competitive interest rates compared to housing and gold loans,” he said.
