Chip suffers from sluggish auto loan growth in May

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By Shashank Didmishe

Growth in auto loans issued by banks continued on a downward trajectory in May as shortages of semiconductors weighed on production, which also impacted sales. Outstanding car loans from banks as of May 31 stood at 4.2 trillion rupees, up 1.2% month-on-month. Growth in the vehicle segment has slowed for two consecutive months, according to the latest data from the Reserve Bank of India (RBI).

In April, automobile loan outstandings increased by 2.7% over the month. In contrast, the banks’ auto loan portfolio improved strongly by 22.2% month-on-month in March and 17.1% in February.

“Semiconductor shortages persist and have impacted the ability of original equipment manufacturers (OEMs) to meet demand,” said HT Solanki, general manager of mortgages and other retail assets at the Bank of Baroda. While expressing the same view, Krishnan Sitaraman, Senior Director and Deputy Director of Ratings at CRISIL Ratings, said the situation for semiconductors is definitely improving and this is starting to be reflected in volumes.

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

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

Additionally, pent-up demand for auto loans may have led to February and March showing higher outstanding loans in the segment and there is the typical year-end surge of lenders in March which provides tailwinds to volumes. at the end of an exercise, Sitaraman said. .

Auto loans are a significant portion of the banking industry’s personal loan portfolio, accounting for 19% of total personal loans. Personal loans, which are currently driving total credit growth for banks, constitute more than 25% of total bank credit outstanding, according to RBI data.

Despite slowing growth in the auto loan segment, auto loans from banks are expected to regain momentum. Bank of Baroda expects the upcoming holiday season to be strong. In Q3FY22, the lender posted 19.5% year-on-year growth in its auto loan book. With supply issues resolved and a few new launches underway, Sitaraman expects structural change that will boost car sales and demand for financing.

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