Chip woes slow vehicle loan growth in May

By Shashank Didmishe

The growth in vehicle loans issued by the banks continued on a downward trajectory in May as semiconductor shortages weighed on production which also impacted sales. Banks’ vehicle loans outstanding as on May 31 was at Rs 4.2 trillion, which was up by 1.2% month-on-month. The growth in the vehicle segment has slowed for two consecutive months, according to the latest Reserve Bank of India (RBI) data.

In April, vehicle credit grew outstanding by 2.7% on month. In contrast, banks’ vehicle loan portfolio improved by a robust 22.2% on-month in March and 17.1% in February.

“The semiconductor shortage still persists and has impacted the original equipment manufacturers’ (OEM) ability to meet demand,” said HT Solanki, general manager of mortgages & other retail assets at Bank of Baroda. While expressing the same view, Krishnan Sitaraman, senior director and deputy chief ratings officer of CRISIL Ratings said that the semiconductor situation is definitely improving and that is beginning to be reflected in the volumes.

Sales of passenger vehicles declined sharply by nearly 10% month-on-month in April and marginally by 0.2% month-on-month in May. With this fall on a month-on-month basis, the sales of the passenger vehicle segment remained below the 2018 level in May, according to Society of Indian Automobile Manufacturers (SIAM).

Banks have 70-75% market share in passenger vehicle loans as it is an interest rate sensitive segment, but have a lower share of around 40% in the commercial vehicle (CV) loan segment. “Hence, growth trends in vehicle loans in the banking sector are more driven primarily by what happens in the car loan segment,” Sitaraman said.

Additionally, pent-up demand for vehicle loans may have led to February and March posting higher loan outstanding in the segment and there is the typical year end push from lenders in March which provides tailwinds to volumes at the end of a financial year, Sitaraman said .

Vehicle loans form a major chunk of the personal loan portfolio of the banking sector, contributing 19% of the total personal loans. Personal loans, which are currently driving the total credit growth for banks, constitute more than 25% of the total bank credit outstanding, RBI data shows.

Despite the slowing growth in the vehicle loan segment, there are expectations of banks’ vehicle loans regaining momentum. Bank of Baroda expects the upcoming festive season to be a strong one. In Q3FY22, the lender posted 19.5% on year growth in its auto loan book. With the resolution of supply side issues and some new launches in the pipeline, Sitaraman expects a structural shift driving car sales and demand for finance.

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