Improving Vehicle and rural demand to support Auto NBFC growth in Q4FY26: Report

Mumbai (Maharashtra) [India], February 13 (ANI): Improving demand for commercial vehicles (CVs) and passenger vehicles (PVs), along with better fleet utilisation, supported growth in vehicle finance portfolios of auto-focused non-banking financial companies (NBFCs) in Q3FY26, and this momentum is likely to continue into the fourth quarter, according to a report by Centrum Institutional Research.

The report noted that a pickup in rural markets and improved passenger vehicle demand, aided by the GST rate cut, also helped boost tractor financing performance during the quarter. With demand conditions turning favourable across segments, the sector is expected to carry forward the positive traction into Q4FY26.

It stated "improving PV demand due to GST rate cut, along with a pickup in rural markets, supported tractor performance during the quarter, and this momentum is likely to continue into Q4FY26".

Auto-focused NBFCs delivered a steady Q3FY26 performance, recording average assets under management (AUM) growth of around 16 per cent year-on-year and 4 per cent quarter-on-quarter. Disbursement momentum strengthened meaningfully during the quarter following a softer Q2FY26, largely driven by core vehicle financing businesses.

The report mentioned that the profitability indicators remained stable, with net interest margins (NIMs) staying healthy across the auto finance space. The benefit of repo rate cuts largely accrued during the quarter, supporting margins.

While operating expenses were elevated due to higher disbursement volumes and the one-off impact of the new labour code, overall earnings trends remained supported by stable spreads and improving asset quality.

Credit costs declined sequentially, reflecting better collection efficiencies and improving asset quality trends. The report highlighted that asset quality metrics have shown steady improvement, providing comfort on the risk front.

Looking ahead to Q4FY26, the report expects continued support from improving PV demand, sustained traction in rural markets and healthy tractor performance. The strengthening in core vehicle financing segments, combined with stable margins and moderating credit costs, is likely to keep growth momentum intact.

Overall, the sector's outlook for Q4FY26 remains positive, supported by sustained demand recovery, improving credit trends and stable operating performance. (ANI)

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