Gains ahead for vehicle financiers

GST 2.0, a reviving rural economy, and chances of further interest rate cuts, could trigger an upswing in demand for automobiles.

- DEVANGSHU DATTA

In turn, that may lead to improved prospects for non-banking financial companies (NBFCs) with large vehicle finance portfolios.

Vehicle finance demand has been muted and asset quality stressed in the financial year 2026 (until August). But GST reforms will lower vehicle prices by 7-8 per cent for PVs and CVs. As such, NBFCs like Shriram Finance, Cholamandalam and Mahindra & M Finance, L&T Finance, which have high vehicle exposures could see a boost.

Going forward, net interest margins (NIMs) may improve as rate cuts flow through and hence, net interest income or NII growth should also improve in the second half of the financial year 2026 (H2FY26). Smaller PVs and two-wheelers are the biggest winners, with 8 per cent price cuts and hopes of double-digit demand boost. Internal combustion vehicles gain since the tax differential versus EVs is reduced. Vahan registrations during Apr-Aug ’25 were muted for two-wheelers (2Ws) and personal vehicles (PVs) with 1.5-2 per cent year-on-year (Yo-Y) growth, while MHCVs declined 3 per cent. Tractors have a stronger 11 per cent Yo-Y growth.