Auto NBFCs Rev Up Growth Through Diversification in FY26

A Centrum report highlights a gradual improvement in auto NBFC disbursements in Q2FY26. While growth across players remains varied, those with diversified portfolios gain an edge. Diversification and non-vehicle lending become essential growth drivers, as the sector awaits rural recovery and CV demand revival in the fiscal second half.

The auto non-banking financial company (NBFC) sector experienced a gradual uptick in disbursement momentum in the second quarter of fiscal year 2026 after a subdued first quarter, according to a Centrum report. The pace of growth remains varied across the sector, with lenders boasting diversified portfolios holding a noticeable advantage over pure-play vehicle financiers.

The report emphasizes that diversification and non-vehicle lending have emerged as central growth strategies for auto financiers. The performance of the sector in the latter half of FY26 is projected to be heavily influenced by the revival of commercial vehicle (CV) demand and a recovery in rural areas, it stated.

During the quarter, the sector saw moderate normalization in the CV segment and steady progress in the passenger vehicle (PV) and pre-owned vehicle markets. Emerging product lines such as small and medium enterprise (SME) loans, consumer equipment (CE) loans, personal loans (PL), and home loans (HL) have made significant contributions to diversification efforts.

Sundaram Finance emerged as a leading performer, recording an 18.3% year-on-year (YoY) and an 11% quarter-on-quarter (QoQ) growth in Q2FY26, driven by strong retail and SME activities. Meanwhile, Shriram Finance reported a 7.6% YoY growth, a slowdown from the previous year's 15.5%, but showed a 2.9% QoQ recovery following a challenging first quarter.

Cholamandalam Investment and Finance Company (Chola) experienced stagnant growth of just 0.5% YoY and QoQ, attributed to portfolio rebalancing in non-vehicle segments. Mahindra & Mahindra Financial Services (MMFSL) registered 2.7% YoY and 5.5% QoQ growth, recovering from a sharp 17.5% decline in Q1FY26, supported by SME lending and a pre-festival rural demand surge.

The report concludes that while traditional vehicle financing faces cyclical obstacles, lenders with more diverse product offerings are well-poised to sustain growth. Ongoing diversification into non-vehicle segments like SME, personal, and home loans remains a critical growth area for auto NBFCs moving forward. (ANI)

(With inputs from agencies.)