Vehicle loans outstanding rise 22 pc in May despite high interest rates

economictimes.indiatimes.com:

RBI data, the total vehicle loan outstanding climbed from Rs 3.65 lakh crore in May 2021 to Rs 4.16 lakh crore in May 2022, and further to Rs 5.09 lakh crore as of May 19, 2023. The annual rise in loan outstanding was only 14 per cent in May 2022.

The RBI started raising the interest rate in May last year to check inflation in the wake of the Russia-Ukraine war and cumulatively increased the repo rate (benchmark interest rate) by 250 basis points in six tranches before pressing the pause button at the beginning of the current fiscal. The retail sales data collected by the Federation of Automobile Dealers Associations (FADA) also reflects rising sales of vehicles across various categories in June.

According to FADA, the auto retail sales in June demonstrated a 10 per cent year-on-year growth, encompassing positive performances across various vehicle categories, including 2-wheelers, 3-wheelers, passenger vehicles, tractors and commercial vehicles. Rohan Kanwar Gupta, Vice President and Sector Head — Corporate Ratings, Icra Limited said the demand for passenger vehicles has remained strong, aiding a healthy growth in industry volumes.

Even as the demand remains healthy, there has been a material rise in the cost of ownership, led by the increase in vehicle prices as well as financing cost (a result of an increase in the repo rate), he added. «The impact of the increase in the cost of ownership on enquiries/volumes remains monitorable over the near term; additionally, even as semiconductor supplies have stabilised to an extent, OEMs continue to be wary of a shortage in supplies going forward,» Gupta said.