Market Trends of India Auto Loan Industry
Rising Interest Rates
The Reserve Bank of India, to control inflation post-COVID-19, adopted a contractionary monetary policy by raising the rate of interest. This increase in the rate of interest increased the cost of vehicle loans and EMI interest on the loans taken by borrowers. With its policy mandates to control inflation, RBI had overall increased its interest rates. With a continuously rising interest rate on loans, outstanding debt of automobile loans was observed a continuous increase of 22 % last year, leading to a rising risk for bank loans. Many prefer personal automobiles over public transit or ride-sharing options after COVID-19, even after the rise of interest rates. Growth in personal vehicle loans in India still exists at a significant level of around 10%. With rising interest rates spread in the market, an increasing number of players, such as financial companies and fintech, are entering to reap the benefits.
Government Initiatives for Automobile Market
The Indian government has implemented plenty of regulations and measures to encourage auto manufacture and make finance more accessible. Schemes such as the "Pradhan Mantri Mudra Yojana" and "Stand-Up India" attempt to give financial aid and foster entrepreneurship, particularly automotive-related firms. Furthermore, the Goods and Services Tax (GST) has simplified tax systems, resulting in earlier combined VAT and excise duty tax rates on cars declining. With the government's aim towards increasing the sale of electric vehicles in the market, it is providing incentives for sales of all kinds of electric vehicles, which exist at more than 2 million units in the current year and are expected to rise over the coming period. In addition to this, banks are also offering interest subsidies to Electric vehicle loan borrowers, which increases their ESG scores as well. These policy initiatives are helping the auto loan industry to adopt green finance and increase their business as well.
