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Non-banking finance companies (NBFCs) may see their vehicle finance portfolio grow 300 basis points (bps) faster over the three fiscals to 2020, according to rating agency Crisil. The vehicle loan business will clock a CAGR (compound annual growth rate) of 15 per cent as compared with 12 per cent seen in the past three fiscals.
Growth will be driven by an improving macroeconomic environment coupled with higher Government focus on infrastructure and rural areas. The market opportunity for NBFCs will stem from continued government investments in the roads sector, expected finalisation of the scrappage policy or the Voluntary Vehicle Modernisation Programme and higher Budgetary spends for the rural sector, it said.
In terms of segments, about 85 per cent of the NBFC vehicle finance portfolio comprises commercial vehicle and cars/ utility vehicles (UVs) financing. The balance includes tractor and 2/3 wheeler financing.
While all segments of vehicle finance are expected to grow faster than before, commercial vehicle financing, which constitutes 51 per cent of the vehicle finance portfolio of NBFCs, is expected to rebound from the lows seen over the past several years and is expected to clock a CAGR of 14 per cent till 2020, on account of which NBFCs would retain their share of over 65 per cent in the overall CV finance market.
The light commercial vehicle (LCV) finance will steer this growth as the hub-and-spoke logistics model gains traction after the advent of GST, but the shift to higher tonnage vehicles will also prop medium and heavy commercial vehicle financing.
“NBFCs have carved a niche in the small fleet operator and first-time user/ buyer segments of CV finance by leveraging on their core strengths of customer relationships, adaptability, local knowledge, and innovativeness,” said Krishnan Sitaraman, Senior Director, Crisil Ratings.
“LCV financing would continue to be dominated by NBFCs. NBFCs’ LCV financing portfolio will grow at a CAGR of 16 per cent, leading to a commanding 80 per cent market share by 2020,” he added.
The other major segment, cars and UV financing, which constitutes 34 per cent of overall NBFC vehicle finance portfolio, is expected to clock a CAGR of 18 per cent over the next three fiscals.
Increasing disposable incomes, sharper focus on Tier-II and Tier-III cities, the growing consumer preference for higher-value UVs, and improving penetration of formal finance are expected to propel growth. Banks continue to dominate this segment with a share of 63 per cent, having gained 300 bps market share from NBFCs over the past four fiscals, due to their ability to offer lower yields and attract customers in the top 20 cities.
However, within NBFCs, an interesting trend that has emerged in recent years is the significant scale-up in business of foreign-owned captive NBFCs as compared to domestic NBFCs in the cars and UV financing market.
“The ability of foreign-owned captive NBFCs to offer attractive yields – backed by de facto subvention from the parent – means they can compete with banks. The upshot has been that foreign-owned captives have increased their market share by 500 bps over the past four years in the car and UV financing market,” said Ajit Velonie, Director - Crisil Ratings.
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