The number of vehicle loans outstanding increased by 22% in May

13 Jul 2023 , 11:00 AM

Despite the Reserve Bank’s rate hike binge in 2022–2023, the amount of outstanding vehicle loans surged by 22% year over year to Rs 5.09 lakh crore in May. 

According to the most recent data from the RBI, the total amount of outstanding vehicle loans increased from Rs 3.65 trillion in May 2021 to Rs 4.16 trillion in May 2022, and then to Rs 5.09 trillion as of May 19, 2023. In May 2022, the yearly growth in loan outstanding was only 14%.

The RBI began hiking interest rates in May of last year to control inflation in the wake of the Russia-Ukraine war. Before hitting the pause button at the start of the current fiscal year, the RBI raised the repo rate (benchmark interest rate) a total of 250 basis points in six tranches.

The Federation of Automobile Dealers Associations’ (FADA) retail sales data shows that sales of vehicles in all categories increased in June.

The demand for passenger vehicles has continued to be strong, contributing to a solid increase in industry volumes, according to Rohan Kanwar Gupta, Vice President and Sector Head – Corporate Ratings, Icra Limited, who talked to ET.

Despite the fact that demand is still strong, there has been a noticeable increase in the cost of ownership, which is primarily attributable to rising car prices and financing costs (caused by an increase in the repo rate), he continued.

Even if semiconductor supplies have stabilized to some extent, OEMs are still concerned about a supply constraint in the future, according to Gupta. ‘The impact of the increase in the cost of ownership on enquiries/volumes remains monitorable over the near term,’ he added.

The cost of cars has increased along with the introduction of new vehicles with enhanced designs and amenities. As a result, he observed, car loans are growing in acceptance, and their typical loan amount is also increasing.

Additionally, as the economy moves towards a more formal structure, more people are completing income tax reports, which improves their loan eligibility. Fintech firms are also making loans more accessible, which makes it easier for people to get credit. 

The industry anticipates that the economy will continue to improve, which should benefit the car sector, with forecasts of a reasonable monsoon, which has now covered most of the nation. This monsoon is also expected to assist cut inflation.

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