GST cuts fuel car loan surge, but CVs stay in the slow lane

Recent reduction in GST rates on select vehicles to 18% from 28% revived retail sentiment

- Subhana Shaikh

After months of muted demand, auto loans appear to have hit the fast lane.

The recent reduction in the goods and services tax (GST) rates on select vehicles to 18% from 28% has revived retail sentiment, sparking an uptick in passenger vehicle sales and demand for loans to finance them, four lenders said.

Bankers’ post-results calls with analysts suggest strong growth momentum in vehicle loans October onwards. However, while loans for cars and two-wheelers are picking up, the commercial vehicle segment remains under pressure due to borrower over-leverage and sluggish economic activity.

State Bank of India, Axis Bank, IndusInd Bank and Shriram Finance, all with significant auto loan portfolios, reported clear signs of recovery in vehicle demand in the September quarter. This comes after the GST reforms, which became effective from 22 September, eliminated rate slabs of 12% and 28%, creating a two-slab system with products and services taxed at 5% and 18%. The move led to significant GST rate cuts on certain categories of cars, boosting their sales.

While the tax cuts boosted retail activity, bankers cautioned that these are still early signs of a rebound in vehicle loans, and its sustainability depends on demand holding through the festive season and beyond.