New Delhi: As an indication of improving sentiments, more people in the country are now borrowing to purchase new vehicles. With the pickup in economic activities and rising demand and rates for goods transport, fresh auto loan disbursements by non-banking financial companies (NBFCs) have almost touched the pre-COVID levels in the first half of FY22
Data provided by the Finance Industry Development Council (FIDC), shows that in H1 FY22, loans worth INR 63,669.84 crore were disbursed to the auto sector compared to INR 43,564.77 crore in the same period a year ago, up 46.15%. A sequential reduction in gross NPA was also seen quarter-on-quarter.
Bajaj Finance and Mahindra Financial Services (MFSL), the two major NBFCs in the auto segment, reported about 3% decline each in their gross NPAs in the three months to September, quarter-on-quarter.
Source: FIDC
Rural rebound in July-September was one of the prominent factors that supported credit growth. Extended monsoons and hike in MSP in the latter part of H1 improved liquidity in the hinterlands which is an important market for commercial vehicles (CVs), followed by three-wheelers, and the entry-level two-wheelers.
Notably, about 70% of new CVs, 80% of three-wheelers and 45% of two-wheelers are purchased on credit in India.
According to Umesh Revankar, MD and CEO of Shriram Transport, the MSP on various crops which was increased by 2% to 8% helped the rural economy gain momentum. CV sales were 166,251 units in Q2 FY22, close to the 167,173 in Q2 FY20, he said.
“Higher fleet utilisation, increased cement and steel consumption, infrastructure development and road construction were all positive indicators,” Revankar said in a post earnings call earlier this month.
On a similar note, Ramesh Iyer, said that the rural market dipped to a very low after the second wave, but then as things began to open up, they pushed themselves back. “Most of the customer segments that we work with, vehicle, tractor, and three-wheeler, are all earn and pay segments. And with the return of activities in the rural market, we saw the bounce back of our customer segment,” he said.
The outlook
Despite delivering impressive growth and high customer footfall at the dealerships, NBFCs are sceptical about maintaining the same pace for the rest of the year due to supply chain slowdown. The ongoing global chip shortage has created an unpredictable waiting period, particularly in the passenger vehicle segment where almost 50%-55% new cars are financed by the micro financiers.
Iyer said the supply side remains a constraint, but the demand is not. “And therefore we think that as the vehicles start becoming available, we will see more traction on the disbursement side also, because the demand is holding up,” he added.
..we think that as the vehicles start becoming available, we will see more traction on the disbursement side also, because the demand is holding upRamesh Iyer
On the industry level, OEMs are expecting that their production and supply will improve in the next three to six months.
Auto major Mahindra and Mahindra said earlier this month that it expects semiconductor shortage to persist in 2022 but with less severity. NBFCs reckon that the moment supply side starts improving the microfinance industry and their numbers also will begin to grow across the segments, and both the used and the new will do better.
Moreover, increase in outstanding loans due to the higher ticket size is also a looming worry. With hike in vehicle prices, because of commodity price inflation and BS-VI regulations, the ticket size of auto loans jumped over 20% in the past six years. The average vehicle loan ticket size went up to INR 5.43 lakh in FY21 from INR 4.5 lakh in FY16.
Though the outlook on the disbursement front looks under pressure, financiers expect recovery in repayment cycle.
In general, collections in the second half are better than in the first half mainly because it is the harvest season and the people have cash. “Normally we tend to have more than 100% collection in the second half of the year. So, we expect the collections to improve,” Revankar said.
Agriculture is a sector of opportunity and resilience. “If we are willing to take a granular view of this sector in terms of multiple states, districts, pin codes, agro-climatic zones etc, rather than a broad-brush approach, we believe this will remain the sector of opportunity for decades to come, “ Sunil Prabhune, Chief Executive, Rural Finance and Group Head, Digital, IT and Analytics, L&T Financial Services, told ETAuto.
