The strong year-on-year growth in auto loans of 22.1% in October – the highest in five years – is likely to sustain in the coming months as well, primarily due to unabated consumer demand, say bankers.
In fact, some expect things to improve further in coming months. “The growth in auto loans will intensify in the next 12-15 months when supply rises to full capacity to meet the rising demand,” Rajiv Lochan, managing director, Sundaram Finance, said.
Outstanding vehicle loans stood at Rs 4.6 trillion as on October 21, up 110% compared with March 2020, when India had imposed COVID-19 restrictions for the first time.
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The sharp increase in loans so far has been driven by a rise in demand for vehicles amid the economic recovery after Covid-led disruptions.
Some borrowers also decided on purchasing of vehicles for the first time during the pandemic in order to mitigate health-related risks associated with using public transport, say bankers.
“Vehicle sales generally are the true reflection of the direction of the economy and this is indicated in the fact that GST and employment data are positive.” Narendra Dixit, head of retail banking, CSB Bank, said.
In October, passenger vehicle sales rose 40.6% y-o-y to 328,645, data from the Federation of Automobile Dealers Association (FADA) showed. In November, passenger vehicle sales rose 21.3% y-o-y to 300,922, the latest data showed.
“…the passenger vehicle segment is doing well on the back of pent-up demand, exciting new launches, growing preference for environment-friendly vehicles and adequate liquidity in the financing system,” Piyush Parag, deputy vice president – fundamental research, Sharekhan, said.
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Specifically, there has been a strong traction for sports utility vehicles and luxury cars, which require loans of a higher ticket size than smaller variants, say bankers. The demand for this category of vehicles is also expected to sustain going ahead. Simply put, the rise in automobile sales will propel the demand for loans to purchase them, say experts.
“We believe that the momentum will continue in vehicle sales for many more quarters,” Dixit said. “Vehicle loan is a franchise product. Banks are interested in building this portfolio to sell many more products and services to the customer. Risk in this portfolio is going down across the industry.”