Saturday, September 30, 2023

Auto finance in India: Where are we now and what’s the way forward?


By Bhaskar Karkera

The auto finance sector in India has witnessed a lot of changes in the last one year, in the wake of the Covid-19 pandemic. What’s the current scenario in the sector and where is it headed?

The year 2020 has been undoubtedly the most unprecedented time faced by all. Already languishing under a slowing economic growth in 2019, the covid-19 pandemic hit a severe body blow to the Indian economy and its vast consuming class.

This year, where many sectors saw a zero sale, has however bounced back impressively and the economy is fast-moving back to normalcy. The auto sector also has challenges to overcome, however inching towards stability. And the resilient middle class, on the back of a recovering economy, is bracing for a much stronger year. Despite the struggle, we remain cautiously optimistic about a recovery in 2021.

As India gradually unlocked and people started going back to work, in an era of social distancing – some key themes that have emerged stronger are – the rise of personal mobility, improved penetration triggered by digital interaction, and rural markets continuing to offer a stronger cushion on slowing urban markets. In all this, financing has been the center of this transformation – and a strong enabling tool to overcome the need gap.

Financing is the backbone of the vast consuming class to improve penetration and achieve their aspirations. And the role has become ever so important for the masses to fulfill their personal mobility needs in a slowing per capita environment.

Covid-19 has triggered a major structural shift in perception for personal mobility.

Covid-19 has triggered a major structural shift in perception for personal mobility. Post covid-19, what is an era of ‘new normal’, personal mobility will no more be seen as a means of arriving in life, but it will be seen as a necessity. Financing as always has become a strong enabler in fulfilling this need.

The rise in demand for two wheelers, entry cars and also used cars is a testament to this change and AU Small Finance Bank has capitalized from this transition. A buoyant rural economy turned out to be a big blessing in disguise for the Indian economy; it not only cushioned the shock from Covid-19, but also triggered a quick revival to V shaped recovery.

Rural demand has been a big boost to sales as well as auto finance. It has increased from 38% pre-covid-19 to 41% post-covid-19. Not surprisingly, the tractor and two-wheeler segments were quick off the mark. Tractors have been free from Covid-19 impact and have grown 28% on a YoY basis. Eventually, as the supply chain got normalized, the passenger car market started hitting record volumes month on month led by festivities, quickly making up for lost volumes during the lockdown.

Financing has increased in used cars segment.

There were no issues on vehicle funding post moratorium albeit it was done judiciously based on the profile of prospective buyers. The lending is in fact back to normal and in the used car market there is more demand than the supply available. The customer enquiry for auto finance has in fact increased by 15-20% post-covid-19. 

Financing has in fact increased in used cars, a segment that was serviced wholly from the unorganized sector is changing. In the new car segment, nearly 75% is auto financed through the organized sector. While in the used car segment only 25% of the cars purchased were from the organized sector but this percentage is increasing.

While there was a significant rise in personal mobility, the fleet and commercial segment took a beating on safety concerns and the work from home environment. With the first batch of novel coronavirus vaccines arriving soon in India, we would expect improvement in consumer sentiment leading to positive sales trends and business normalcy, including the auto finance sector.

Also Read: EVs will push vehicle finance sector to rejig business strategy: Apoorv Goyal

(Bhaskar Karkera is the Executive Vice President of AU Small Finance Bank.)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)


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