India’s vehicle finance assets under management (AUM) are projected to grow to Rs 9.4 lakh crore by FY26, with a compound annual growth rate (CAGR) of 15-16% for this and the next fiscal year, according to a report by Crisil Ratings.
The rise in demand for used vehicles, coupled with a preference for premium cars, commercial vehicles (CVs), and utility vehicles (UVs), is expected to drive this growth. Despite the recent revision of GST rates on the profit from used vehicle sales, which could slightly increase ownership costs for borrowers, vehicle financing will continue to grow as used vehicles remain more affordable compared to new ones.
Vehicle financing is cyclical, influenced by economic factors like GDP growth and weather patterns. Non-bank vehicle financiers have increased their focus on used vehicle financing, with its share of AUM rising by 800 basis points (bps) to 41% from FY 2019 to 2024. This trend, alongside growing demand for premium vehicles, is expected to sustain vehicle financing growth, making it a key asset class for non-banking financial companies (NBFCs).
The vehicle finance sector will see growth in different segments. Commercial vehicle finance, making up nearly half of the market, is set to grow by 11-12% annually. Car and UV financing, accounting for 25% of the sector, is expected to grow by 22-23%, driven by the increasing popularity of premium cars and UVs. Tractor and two-wheeler financing, supported by rural demand and better agricultural yields, will also see positive growth.