Northern Arc’s FY-25 sector trends report on vehicle-finance non-banking financial companies (NBFCs) provides an in-depth view of portfolio growth, disbursement patterns, asset quality and profitability across a diverse set of lending partners. The analysis covers entities ranging from small NBFCs with portfolios under ₹500 crore to large institutions with books above ₹2,000 crore, spanning products from commercial vehicles and two-wheelers to electric-vehicle financing. This article translates the slide deck into an accessible narrative while preserving key data points, charts and state-wise insights from the original report. Click here to access the deck.
Snapshot of Vehicle‑Finance Partners
Northern Arc has been tracking a diverse set of vehicle‑finance NBFC partners. As of March 2025 the combined portfolio stood at ₹35,408 crore with disbursements of ₹25,644 crore during FY‑25 and net worth of about ₹10,185 crore. The portfolio spans entities of very different sizes; around nine and eleven partners each fall into the “< ₹500 crore” and “₹500 – 2,000 crore” AUM buckets, while four have portfolios exceeding ₹2,000 crore. Figure 1 summarises the universe of partners by size and product. EV‑focused NBFCs are still few (six entities with AUM of ₹2,978 crore), whereas two‑wheeler (2W) financing (nine entities) and commercial vehicles (CV) financing (nine entities) dominate with AUM of ₹10,253 crore and ₹22,176 crore respectively. Average asset quality remains moderate: the portfolio‑at‑risk over 90 days (PAR > 90) ranges from 2.6 %–3.0 % across size categories. Current collection efficiency (CE) is highest for EV loans (88.2 %), slightly lower for two‑wheelers (87.6 %) and weakest for CV financing at 79.0 %.
AUM and Disbursement Trends
Vehicle‑finance NBFCs saw moderate growth in portfolio outstanding through FY‑25. Figure 2 (top panels) tracks the AUM movement across half‑year periods. Portfolios of mid‑sized NBFCs (₹500 – 2,000 crore) grew steadily; the > ₹2,000 crore segment also expanded, albeit at a faster compound annual growth rate (CAGR). In contrast, AUM of the smallest NBFCs (< ₹500 crore) plateaued over FY‑24 and FY‑25. When broken down by product, commercial‑vehicle lenders carried the bulk of the book (AUM ~₹22,176 crore by H2 FY‑25), two‑wheeler financiers sat in the middle (~₹10,253 crore) and EV financiers remained a niche (~₹2,978 crore).
The disbursement trend (Figure 2, bottom panels) mirrors the AUM pattern. CV disbursements climbed above ₹8,000 crore in H2 FY‑25, while two‑wheeler disbursements reached ~₹4,472 crore. EV disbursements, though much smaller, more than tripled from FY‑22 to FY‑25, signalling rapid growth. NBFCs with larger portfolios maintained higher disbursal volumes, whereas disbursements from the < ₹500 crore cohort remained modest.
Asset Quality and Portfolio Performance
Asset‑quality pressures eased marginally in FY‑25 but remained elevated. Average PAR > 30 days declined across categories yet stayed above 10 % for large portfolios (> ₹2,000 crore). PAR > 90 days improved to ~3 % for mid‑sized lenders but hovered around 3–4 % for the largest NBFCs; in the CV book, PAR > 90 rose above 3 % despite improvement in earlier years.
Portfolio performance varied significantly across states (Figure 3, bottom). Maharashtra carried the largest vehicle‑finance book (~₹4,733 crore) with PAR > 90 DPD of 3.1 %. Rajasthan and Gujarat followed with PAR > 90 at 4.3 % and 3.3 % respectively. These regional differences underline the importance of geographic diversification when building vehicle‑finance portfolios.
Collections and Profitability
Current collection efficiency improved slightly through FY‑25. Mid‑sized NBFCs (₹500 – 2,000 crore) achieved the highest CE (~90 %) while large NBFCs hovered around 82–84 %. Product‑wise, EV loans displayed the best collections (~90–93 %), reflecting a more disciplined borrower base; two‑wheeler loans followed (~87–88 %) and commercial‑vehicle loans lagged at ~79–81 %.
Mid‑sized NBFCs generated healthier ROA thanks to balanced income and cost structures, while the largest NBFCs experienced high credit costs in FY‑22 but recovered by FY‑25. Product‑wise, EV lenders delivered superior margins (NII of ~9.9 % of GLP and PAT ~2.4 % in FY‑25) despite high operating expenses. Two‑wheeler finance also generated positive PAT (~2.1 % of GLP) as credit costs fell. Commercial‑vehicle finance, however, suffered from heavy credit costs (9.4 % in FY‑25) and only modest PAT (~2.0 %).
Profitability buffers (PPOP/credit cost) remained thin for smaller NBFCs (around 2.9x in FY‑25) but improved for mid‑sized lenders. Loan‑loss provisioning as a share of AUM fell sharply for the largest NBFCs (from ~12 % in FY‑22 to ~2 % in FY‑25), while it hovered around 1 % for smaller entities.
Capital Position, Equity Infusion and Ratings
Return on equity (ROE) trends highlight the role of scale. Large NBFCs (> ₹2,000 crore AUM) swung from –21 % ROE in FY‑22 to 7 % in FY‑25, reflecting recovery in profitability and credit costs. Mid‑sized lenders also improved from negative ROE in FY‑22 to around 10 % by FY‑24 before moderating to 9 % in FY‑25. Among products, two‑wheeler lenders posted the strongest ROE at 14 % in FY‑24, though returns normalised to 9 % in FY‑25; EV and CV lenders maintained ROE around 7 %. Capital adequacy ratios remained healthy across the sector, with CRAR averaging 28 %–35 %.
Rating migrations were generally positive; several entities were upgraded from A to A+, BBB to BBB+, or unrated to BBB‑, although a few remained unchanged. Stronger capitalisation and rating upgrades should improve funding access and reduce borrowing costs.
Leverage, Liquidity and Funding Composition
Smaller vehicle‑finance NBFCs increased leverage sharply: their Debt/TNW rose from 1.8x in FY‑22 to 4.7x in FY‑25. Mid‑sized lenders maintained leverage around 3.5–3.7x, while large NBFCs kept it near 3.2x. Product‑wise, two‑wheeler NBFCs remained the most levered (Debt/TNW rising to 4.0x), whereas EV lenders maintained moderate leverage (~3.6x) and CV lenders ended FY‑25 at 3.1x. Liquidity buffers, measured as free cash & liquid assets to total assets, improved for the smallest NBFCs (from 5.8 % to 6.6 %) but declined for mid‑sized lenders; large NBFCs still held sizeable liquidity (8.5 % of total assets) though down from the previous year.
Funding sources remained bank‑centric. As of March 2025, banks accounted for 56.7 % of total outstanding debt, NBFCs 28.04 %, development finance institutions (DFIs) 3.7 %. New debt raised in FY‑25 was also largely from banks (47 %) and NBFCs (38 %), with DFIs and alternative investors filling the remainder. Term loans constituted 54.2% of debt outstanding, while non‑convertible debentures (NCDs) made up 26.1%, securitisation 12.0 % and working‑capital facilities 6.8 %. Lower‑rated issuers (BBB and below) relied more on NBFC funding and term loans, whereas higher‑rated NBFCs accessed banks and NCD markets.
Electric Vehicle Market and Portfolio Insights
The EV industry in India is witnessing explosive growth. Annual EV sales increased four‑fold from 491 thousand units in FY‑22 to 2.03 million units in FY‑25. Electric two‑wheelers dominate, accounting for 59.4 % of FY‑25 sales, followed by three‑wheelers (34.7 %), electric cars (5.5 %), buses (0.2 %) and other segments. Uttar Pradesh emerged as the leading EV market with 378 thousand units sold, followed by Maharashtra (246k), Karnataka (174k), Tamil Nadu (138k) and Bihar (114k). Among manufacturers, Ola Electric retained the top spot with 359k vehicles sold in FY‑25, ahead of TVS Motor (253k) and Bajaj Auto (239k).
Northern Arc’s EV loan book shows increasing concentration but relatively benign asset quality. The top five states—Uttar Pradesh, Delhi, Maharashtra, Karnataka and Bihar—account for 58 % of the EV portfolio. Average PAR > 90 across geographies is around 2 %: Bihar recorded 7.1 %, Uttarakhand 5.5 % and Uttar Pradesh 4.1 %. Maintaining geographic diversification and prudent underwriting will be crucial as EV financing scales up.
Policy Landscape
Several government programmes are catalysing EV adoption and supporting automotive finance:
· PM E‑DRIVE scheme: launched with an outlay of ₹10,900 crore, effective from 1 October 2024 to 31 March 2026, to accelerate EV adoption, build charging infrastructure and strengthen manufacturing. The scheme offers demand incentives of ₹5,000 per kWh for electric two‑ and three‑wheelers registered in FY 2024–25 and ₹2,500 per kWh in FY 2025–26.
· Production‑Linked Investment (PLI) scheme: announced in FY‑21 with a budget of ₹25,938 crore to provide incentives of up to 18 % for advanced automotive manufacturing. The scheme has attracted proposed investments totalling ₹67,690 crore, surpassing the initial target.
· Automotive Mission Plan (AMP 2016–26): targets a four‑fold expansion of the automobile sector over 10 years, creation of 65 million jobs and contribution of 12 % to India’s GDP, with the industry expected to reach US$260–300 billion.
· Vehicle Scrappage Policy (2021): aims to phase out vehicles older than 15–20 years to curb pollution and stimulate demand for new vehicles.
· Clean Tech scheme: provides US$3.5 billion in incentives over five years to encourage production and export of clean‑technology vehicles.
· Electric Mobility Promotion Scheme (2024): a fund‑limited programme with an outlay of ₹500 crore from April 1 2024 to September 30 2024 designed to boost EV adoption.
· PM‑eBus Sewa scheme: launched in August 2023 to procure 10,000 electric buses for 169 cities through public‑private partnerships; total outlay is ₹57,613 crore and the scheme runs until 2037.
These initiatives, along with state‑level incentives, are expected to lower total cost of ownership for EVs, stimulate demand and support the financing ecosystem.
Conclusion
Vehicle‑finance NBFCs entered FY‑25 with moderate growth, improving profitability and healthy capital buffers. Portfolio expansion is being led by larger NBFCs and by rapid growth in EV and two‑wheeler financing. Overall delinquency ratios have stabilised and collection efficiency remains resilient. The sector’s leverage is rising for smaller NBFCs, but ample liquidity, continued equity infusions and favourable rating migrations provide cushioning. Government policies—including the PM E‑DRIVE and PLI schemes—are set to accelerate EV adoption, offering new opportunities and challenges for vehicle‑finance lenders. As India’s auto market evolves toward electrification, lenders that combine prudent underwriting, geographical diversification and robust capital management should be well positioned to capture the next wave of growth.
Disclaimer
This article is based on Northern Arc’s FY-25 Vehicle Finance NBFCs sector report. It is intended for informational purposes only and does not constitute investment advice or a recommendation.