EUR 350.00 For Business Accounts Only

MOSL : VEHICLE FINANCE: Margin compression imminent, but are there other levers?

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• There can be a 140-165bp increase (including the 90bp already announced in May-Jun'22) in policy repo rates in FY23. Given the fixed-rate lending nature of Vehicle Finance and depending on the nature of the liabilities, borrowing and product mix, and the pricing power, the impact on margin can vary between 30bp and 45bp among different lenders in FY23.
• Semiconductor shortages persisted for a large part of FY22. The situation is expected to sustain, with supply-side issues unlikely to get fully resolved in FY23. If fuel prices were to stay or moderate from current levels, we do not estimate any significant impact on vehicle demand or on repayments or collections. However, if fuel prices were to increase by 10%-15% from current levels, we expect higher delinquencies particularly in the CV-CE segment.
• Commodity-price inflation is feeding into higher ticket size of New and Used Vehicles. This will aid disbursement growth in FY23 as well. Rising interest rates in isolation will not have a direct impact on demand for either Passenger or Commercial Vehicles, but even a moderate slowing down of the economy has the potential to keep demand for new vehicle purchases muted. 
• Demand for Commercial Vehicles (CVs) has exhibited an improving trajectory for the last four-to-five months. We expect the demand momentum to sustain in FY23, with higher capacity utilization from Infrastructure spending feeding into the demand for newer vehicles.