The risk of a huge increase in bad loans of auto finance companies

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MUMBAI: Bad loans of auto finance companies are at risk of skyrocketing due to the implementation of Corona-related lockdowns by various state governments in April-May.

Loans from auto financiers, especially in the two-wheeler and three-wheeler segments, are showing signs of weakening. The latest June quarter results released by a private finance company show a huge increase of 16 per cent in auto loans against bad debts.

Defaults were seen in loans of two wheeler and three wheeler segments. Another auto finance company has also signaled a weakening of loans in the June quarter.

Auto loans of non-banking finance companies (NBFCs) are weaker than those of banks, an analyst said. As NBFCs provide more risky loans, they are more likely to have weak loans.

At the end of March this year, India's auto finance industry was worth Rs 3 trillion. The situation could worsen if the lockdown is re-imposed, the analyst added.

The collection saw a recovery in March of the current year but declined in April-May. Declining borrowers' incomes have affected their ability to repay.

The business of auto finance companies also depends on the sale of vehicles. Growth in vehicle sales leads to an increase in loans. If further lockdowns are not implemented, trade is expected to improve from the current quarter.

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