What Happened
Used car financing in India has grown faster than new auto loans over the past five years, reaching a portfolio size of Rs 1.3 lakh crore by June 2026. This growth occurred despite the segment historically facing higher stress levels. Crucially, the overall asset quality in the wheels finance segment is now reported to be stabilizing, indicating improved risk management and potentially better profitability for lenders.
Why It Matters (for you)
This trend signifies a structural shift in consumer behavior towards more affordable mobility solutions, driven by factors like rising interest rates and inflation impacting new car purchases. For the Indian financial sector, it highlights a lucrative, high-growth segment where lenders are increasingly comfortable with risk, potentially leading to higher Net Interest Margins (NIMs) and improved asset quality for specialized financiers.
Impact on Indian Markets
This news is positive for NBFCs and banks with significant exposure to vehicle financing, particularly those with a strong presence in the used car segment. Companies like Mahindra & Mahindra Financial Services (M&MFIN), Bajaj Finance (BAJFINANCE), and Cholamandalam Investment and Finance (CHOLAFIN) are likely to see positive sentiment. Major private banks like HDFC Bank (HDFCBANK) and ICICI Bank (ICICIBANK) with diversified auto loan portfolios will also benefit from the overall growth and improved asset quality in this segment.
What Traders Should Watch Next
Traders should monitor the quarterly results of key NBFCs and banks for specific commentary on their used car loan portfolio growth, asset quality trends (NPA ratios), and NIMs from this segment. Further regulatory guidance or changes in interest rates could also influence the growth trajectory and profitability of used car financing. Watch for any signs of renewed stress in the broader vehicle finance segment.
Key Evidence
- Used car financing grew faster than auto loans over the last five years.
- Used car finance portfolio reached Rs 1.3 lakh crore by June 2026.
- Auto loans portfolio grew to Rs 9.9 lakh crore during the same period.
- Financiers funded used cars despite facing higher stress levels.
- Overall asset quality in the wheels finance segment is now stabilising.