NBFC auto loans hit new high in first half of FY22, but weak spots persist, Auto News, ET Auto

Although the outlook on the disbursement front appears under pressure, financiers expect the repayment cycle to resume.

New Delhi: As an indication of improving sentiment, more and more people in the country are now borrowing to buy new vehicles. With economic activities picking up and demand and freight rates rising, new auto loan disbursements by non-bank financial corporations (NBFCs) nearly reached pre-COVID levels in the first half of the year. exercise 22

Data provided by the Financial Industry Development Council (FIDC) shows that in the first half of FY22, loans worth INR 63,669.84 crore were disbursed to the automotive sector compared to 43 INR 564.77 crore in the same period a year ago, up 46.15%. A sequential reduction in raw NPA was also observed from quarter to quarter.

Bajaj Finance and Mahindra Financial Services (MFSL), the two largest NBFCs in the automotive segment, reported declines of around 3% each in their gross NPAs in the three months to September, quarter-on-quarter .

Amount sanctioned (Cr)
Type of lender S1 FY21 S1 FY22 % Change
Automatic loan 391.32 619.11 58%
Car loan (personal) 12,753.02 21,444.41 68%
commercial vehicle 16,714.23 26,184.35 57%
Two wheels 9,902.26 11,935.28 20.50%
construction equipment 3,803.94 3,486.69 -8.30%
Total 43,564.77 63,669.84 46.15%

Source: IFCD

The rural rebound in July-September was one of the main factors supporting credit growth. Prolonged monsoons and rising MSP in the latter part of the first half improved liquidity in the hinterland, which is an important market for commercial vehicles (CVs), followed by three-wheelers, and two-wheelers entry-level.

Notably, about 70% of new CVs, 80% of three-wheelers and 45% of two-wheelers are bought on credit in India.

According to Umesh Revankar, MD and CEO of Shriram Transport, the MSP on various crops which has been increased from 2% to 8% has helped the rural economy gain momentum. CV sales were 166,251 units in Q2 FY22, close to 167,173 in Q2 FY20, he said.

“Increased fleet utilization, increased cement and steel consumption, infrastructure development and road construction were all positive indicators,” Revankar said on an earnings call earlier. this month.

Along the same lines, Ramesh Iyer, MD, Mahindra & Mahindra Financial Services, said the rural market fell to a very low level after the second wave, but when things started to open up, they repelled. “Most of the customer segments that we work with, vehicle, tractor and three-wheeler, are all compensation segments. And with the return of business to the rural market, we have seen the rebound in our customer segment,” did he declare. noted.

Perspectives

Despite impressive growth and high customer footfall in dealerships, NBFC is skeptical of maintaining the same pace for the rest of the year due to the supply chain slowdown. The ongoing global chip shortage has created an unpredictable waiting period, especially in the passenger vehicle segment where nearly 50-55% of new cars are financed by micro-financiers.

Iyer said supply remains a constraint, but not demand. “And therefore, we believe that as vehicles start to become available, we will also see more traction on the disbursement side, as demand holds up,” he added.

..we believe that as vehicles start to become available we will also see more traction on the disbursement side as demand continuesRamesh Iyer

At the industry level, OEMs expect their production and supply to improve over the next three to six months.

Automotive major Mahindra and Mahindra said earlier this month that it expects semiconductor shortages to persist into 2022, but with less severity. NBFCs believe that once supply begins to improve the microfinance sector, their numbers will also begin to grow in all segments, and old and new alike will do better.

Additionally, the increase in outstanding loans due to the higher ticket size is also a looming concern. With rising vehicle prices, due to commodity price inflation and BS-VI regulations, the amount of car loans has jumped by more than 20% in the last five years. The average vehicle loan ticket size increased to INR 5.43 lakh in FY21 from INR 4.5 lakh in FY16.

Although the outlook on the disbursement front appears under pressure, financiers expect the repayment cycle to resume.

In general, collections in the second semester are better than the first semester mainly because it is harvest season and people have money. “Normally we tend to have more than 100% collection in the second half, so we expect collections to improve,” Revankar said.

Agriculture is a sector of opportunity and resilience. “If we are prepared to take a granular view of this sector in terms of multiple states, districts, PIN codes, agro-climatic zones, etc., rather than a general approach, we believe this will remain the sector of opportunity for decades to come,” Sunil Prabhune, Managing Director, Rural Finance and Group Head, Digital, IT & Analytics, L&T Financial Services told ETAuto.