Sundaram Finance remains confident of achieving a 15-20% growth in its loan portfolio despite a slowdown in sales in the commercial and passenger vehicle segments — its key growth areas. In an interview, its managing director Rajiv Lochan tells Narayanan V about the non-bank lender’s loan growth, diversification plans, and focus on non-motor lending. Excerpts:
Commercial and passenger vehicle segments aren’t doing well. When do you anticipate a revival?
Demand in our sectors — commercial vehicles, passenger cars and tractors — is directly linked to economic activity. Infrastructure activity also drives demand for construction equipment. Demand in the first half of FY25 was disrupted due to the general elections, several state polls and an intense summer. In H2FY25, demand in the festive season was relatively better but still not where we would have liked it to be. Government spending, which had been driving the economy in recent years, slowed in the first two quarters but picked up somewhat in Q3 and is gathering momentum in Q4.
The RBI’s repo rate cut, the reduction in risk weights on NBFC loans, and the income tax exemptions announced in the Union Budget are all positives. But these measures take time to have on-ground impact. It could take a couple of quarters, and I expect a more visible pick-up (in demand) around the upcoming festive season — perhaps by Diwali. Liquidity remains tight, and once durable liquidity returns to the system, it should support economic activity.
Which segment do you expect to recover faster?
It’s difficult to say definitively. But as India progresses toward the middle-income status, I believe the passenger car segment will see steady growth — not just in volumes but also in premiumisation. We’re already seeing traction in C- and D-segment (premium and luxury) cars and SUVs. Over the next few years, I expect a rebound in the A and B segments (entry-level cars), since that’s where the bulk of the population switches to from two-wheelers. Even though many have been moving directly to SUVs in recent years, there’s still significant potential in the entry-level segment. Having said that, I think the commercial vehicle segment and construction equipment could rebound a bit quicker, especially if government spending accelerates and, more importantly, private sector capital expenditure returns.
Q: How do you view the prospects of the used vehicle market?
Currently, about 80% of our business — across commercial vehicles, passenger cars, and tractors — is in new assets, with the remaining in used vehicles. However, we’re making a conscious effort to rebalance this mix and increase our focus on used assets, as it’s an important and relevant segment for our customer base.
We primarily serve small road transport operators, entrepreneurs, contractors, and farmers. For them, input costs have risen across the board — asset prices, diesel costs, and consequently EMIs — but their revenues haven’t kept pace, as freight rates have remained stagnant due to subdued demand and limited bargaining power.
Given this context, many of these operators are finding used vehicles more viable. The tonnage is the same but EMIs are lower, thereby improving their overall economics. So, the demand for used vehicles is growing, and we find it an attractive opportunity. While we don’t have a fixed target, we definitely aim to increase the share of used vehicle loans in our portfolio.
Q: What are your plans for diversification?
The bulk of our existence so far has been with “assets with wheels”… We are now increasing our focus on the non-transport MSME segment, which involves lending against machinery, properties, or other types of collateral that are less familiar to us. The underlying principles of vehicle financing and non-transport MSME lending are similar. These customers remain underserved and face high borrowing costs. This segment is now beginning to gain traction. We entered this segment before the Covid-19 pandemic, and over the past 5-6 years it has grown to 7-8% of our AUM ( total loan portfolio of ₹50,199 crore). The idea is to take it to double digits first and then grow further.
A few years from now, we expect to have a balanced mix of five key segments: commercial vehicles (including three-wheelers and light commercial vehicles), passenger cars, tractors and farm equipment, construction equipment, and non-transport MSME… We want to ensure that we have a balanced portfolio – a reasonable ‘thali’ – so that no one segment is too dominant or too small.
Q: Your loan portfolio grew 19% in Q3FY25. Where do you expect to close FY25?
Our incremental asset growth this year has been around 7-8% because the economy has been tricky. That said, over the long term, if we maintain our market share and stay focused on the right customer segments, we believe we can consistently grow at 15-20% annually. That’s the range we’ve operated in historically, and we aim to sustain it. Achieving consistent growth in that band requires disciplined execution year after year. If we can do that, the power of compounding will take care of the rest over time.