Banks go aggressive on vehicle finance, tie up with manufacturers

Bankers and analysts said the increasing aspirations and income of Indians with easy availability of loans have contributed to a growing demand for vehicles.

After recording a jump in growth from last year, some private banks plan to go aggressive in their vehicle finance portfolio. Through partnerships with vehicle manufacturers, banks like IDFC First Bank, CSB Bank and Suryoday Small Finance Bank are offering exclusive deals and offers.

For example, IDFC First Bank partnered with Maruti Suzuki in April 2023 to offer personalised finance options across new car loans, pre-owned car loans, and commercial loans.

In August 2023, CSB Bank partnered with commercial vehicle manufacturer Ashok Leyland.

Suryoday Small Finance Bank partnered with OTO, a two-wheeler commerce and financing platform, in September 2023 to provide two-wheeler financing services.

Some banks see demand and plan to grow their portfolio aggressively, other than through partnerships.

Kotak Mahindra Bank aims for a 20-25 percent growth in its tractor finance portfolio for financial year 2023-24. Shripad Jadhav, president and head, tractor and farm equipment, crop loans and gold loans, said that the bank has seen consistent growth, with strong demand in the small tractor segments.

“We are looking at a 20-25 percent growth in tractor finance in FY24. Through our partnerships, we plan to boost more digital financing services,” Jadhav said.

Also read: Ashok Leyland partners CSB Bank Ltd for vehicle financing

Q1FY24 performance

The partnerships and aggressive growth plans come after a healthy and robust growth in the April-June FY24 quarter.

IDFC First Bank recorded a 45 percent growth in its wheels (vehicle) financing portfolio compared to 24 percent in the corresponding quarter last year. Advances in the sector improved from Rs 11,263 crore in June 2022 to Rs 16,365 in June 2023.

Kotak Mahindra Bank reported a 23 percent growth in its commercial vehicle portfolio compared to 20 percent last year. The lender’s portfolio jumped to Rs 28,526 crore from Rs 23,246 crore in a year.

The bank’s tractor finance segment showed a 26 percent growth, compared to 19 percent, last year. In the April-June FY24 quarter, the lender’s portfolio stood at Rs 13,916 crore, compared to Rs 11,015 crore last year.

Industry numbers

Automobile industry body Society of Indian Automobile Manufacturers (SIAM) recently said that during April-June FY24, passenger vehicle sales rose 9 percent to 9,95,974 units from 9,10,495 units in the same period of the last fiscal.

The retail sales data collected by the Federation of Automobile Dealers Associations (FADA) also reflects rising sales of vehicles across various categories in June.

FADA, in a press release, said that the auto retail sales in June 2023 demonstrated a 10 percent year-on-year growth, encompassing positive performances across various vehicle categories, including 2-wheelers, 3-wheelers, passenger vehicles, tractors and commercial vehicles.

According to latest sector credit data numbers from the Reserve Bank of India (RBI), lending to vehicle loans jumped Rs 4.36 lakh crore in July 2022 to Rs 5.29 lakh crore in July 2023.

What do experts say?

Senthil Kumar, Chief Business Officer, Inclusive Finance and Wheels at Suryoday Small Finance Bank, said that the bank aims to target young and aspiring customers with its financial services.

“Through our partnership with OTO, we hope to target and serve the young and aspiring customers and expand our retail portfolio by providing them with financial services,” Kumar said.

Ratings agency ICRA said in a report in May 2023 that the recent improvement in offtake, with the upcoming festive and marriage seasons, has provided optimism and a sustained recovery in demand sentiments is yet to be seen.

Additionally, experts said that the upcoming Union budget could bring in new measures for infrastructure and irrigation developments, especially in rural regions, which could boost vehicle sales.

“The Union Budget 2023-24 is expected to include enhanced budgetary outlays for rural employment, infrastructure, irrigation facilities, etc. With measures to help rural communities, the budget is expected to aid in boosting rural-led demand across segments," said Shamsher Dewan, senior vice-president and group head of corporate ratings, ICRA.