Automakers may be revisiting their production targets, with some even considering lowering output due to subdued demand, but in stark contrast, growth of vehicle loans has been uninterrupted. In fact, within retail loans, vehicle loans are the second fastest growing vertical after housing loans, though the percentage growth (compared to housing loans) pales in comparison.
While growth in credit card and education loans has been flat in the past few years, housing and vehicle loans have been registering positive growth. For instance, while education loans saw mixed growth, including de-growth in FY18, vehicle loans saw positive growth steadily in the past five years.
Considering the increasing demand, banks and financial institutions are going the extra mile to attract customers including offering 100 per cent loan-to-value on select products. Besides, formal financing is available even for the pre-used vehicles segment, which was unheard of in the last decade. Above all, the duration of vehicle loans too is now stretching beyond 50 months as against the norm of 35 months.
However, despite the strong fundamentals, vehicle loans’ volume growth is likely to about 7 per cent CAGR between FY2019-22 unlike credit cards, which being unsecured loans, are expected to see the fastest growth at 30 per cent CAGR within the retail portfolio. However, credit cards’ contribution from a size perspective would still be negligible at 5 per cent as against 3.5 per cent currently. On the other hand, housing loans, which have grown by 18 per cent CAGR, will likely grow at the lower end of the retail loan growth rates and gradually shift away from the main centers of business.
Meanwhile, growth in retail loans continues to accelerate at a strong pace driven by sharp rise in unsecured retail loans. As of January 2019, the overall retail loans grew 17 per cent y-o-y after a brief slowdown immediately post demonetization. Broadly, retail loans would continue to be the mainstay in the medium-term despite this being close to the fourth year of continuous growth in the sector.
Future growth pegged low
Despite the strong fundamentals, vehicle loans’ volume growth is likely to about 7 per cent in FY2019-22