NBFCs see festive credit growth in top gear, riding on auto loans after GST cuts

NBFC

Non-banking finance companies (NBFC) offering automotive loans are confident of stronger credit growth during the upcoming festive season after car and two-wheeler makers cut prices to pass on the benefits of lower Goods and Services Tax (GST) rates to consumers, stoking hopes of strong demand, vehicle financing companies have told Moneycontrol.

According to a senior official with a large NBFC, the growth in vehicle financing is likely to be range of 18-19 percent during the current quarter.

Analysts estimate the GST cuts to spur a strong demand for vehicles during Navratri - between September 22 and October 2 - and benefit automakers as well as financiers.

After the GST rate rationalisation, all internal combustion engine (ICE) and hybrid cars will fall under 18 percent and 40 percent slabs. Smaller cars such as hatchbacks, compact sedans and compact SUVs, will attract a GST of 18 percent, while relatively larger models and luxury vehicles will be taxed at 40 percent, without any compensation cess.

Under the GST 1.0 regime, ICE and hybrid cars were subject to a 28 percent GST along with a cess ranging between 1-22 percent depending on the vehicle's length and engine capacity. Smaller models faced a lower cess while larger cars paid the highest, which resulted in a total tax burden of 29-50 percent (28% GST + 1% to 22% compensation cess).

Another NBFC official was confidence that companies passing on benefits of GST cut will spur demand from the new-to-credit customers during the festive season.

“With the relief from GST cuts and slightly better monsoon-led rural sentiment, two-wheelers is picking up,” said the official with a mid-sized NBFC.

Country's largest carmaker - Maruti Suzuki India - has passed on the benefits of the Goods and Services Tax (GST) rate rationalisation to prospective buyers by slashing prices of models like Swift, Dzire, Baleno, Fronx and Brezza by up to Rs 1.10 lakh.

Maruti’s budget-friendly and mass market models include Alto K10, S-Presso, WagonR, Celerio, Eeco, Swift, Dzire, Brezza and Ertiga. The Nexa models include Ignis, Baleno, Fronx, Jimny, Grand Vitara, XL6 and Invicto.

Read More: From SUVs to sedans, hatchbacks and MPVs: How much GST will they attract?

NBFCs are now realigning their credit strategies to capitalise on the demand surge, and several large and mid-sized players are revisiting their disbursement targets and enhancing dealer tie-ups, particularly in semi-urban and rural markets.

In anticipation of a huge rush in queries, lenders are also leveraging technology to streamline their loan disbursement process.