Revival of Vehicle Loans in India Boosted by GST Cuts and Festive Demand, ETCFO
India’s vehicle loan growth, which had been slowing through the first half of FY26, is showing signs of revival following the Goods and Services Tax (GST) overhaul in late September. After months of tepid expansion, banks are witnessing renewed traction in car and two-wheeler financing, suggesting that the GST rate cuts may have unlocked pent-up consumer demand.
The latest Reserve Bank of India (RBI) data showed vehicle loan growth at 7.3% year-on-year (y-o-y) in September—nearly half of the 14% pace recorded a year earlier. However, post-GST trends indicate an improvement in October and beyond, driven by a combination of lower effective tax rates, festive demand, and improved consumer sentiment.
The new GST structure, effective 22 September, replaced the earlier 12% and 28% slabs with a simplified 5% and 18% regime, leading to lower levies on several vehicle categories. The move spurred immediate activity in retail auto sales, particularly in passenger cars and two-wheelers, where buyers had deferred purchases in anticipation of price cuts.
Major lenders have reported a clear pick-up in vehicle loan disbursals since the tax change. The momentum was most visible in retail segments—cars, two-wheelers, and tractors—while the commercial vehicle (CV) category continues to face sluggish demand amid economic headwinds and borrower over-leverage.
Sales rebound
Data from the Society of Indian Automobile Manufacturers (SIAM) showed that overall commercial vehicle sales grew 8% y-o-y in the September quarter, even as passenger vehicle volumes fell marginally by 1.5%. However, passenger car sales rebounded in September with a 4.4% rise, aided by GST cuts and festive demand. Two-wheeler and three-wheeler sales grew 7% and 10%, respectively, while tractor sales jumped 15%, reflecting stronger rural consumption trends.
Lenders remain optimistic that this recovery in vehicle credit could strengthen through the festive and post-harvest periods, supported by improved rural incomes, higher minimum support prices for key crops, and easing borrowing costs. Analysts expect the second half of FY26 to witness double-digit growth in vehicle loan portfolios, led by continued traction in retail segments.
The outlook for commercial vehicle loans, however, remains muted. Despite a short-term boost in wholesale volumes due to the GST cuts, banks remain cautious over rising delinquencies and stress in small fleet operators. Industry experts believe that a broader pickup in economic activity and freight movement will be essential for a sustained turnaround in the CV segment.
