The auto finance non-banking financial companies (NBFCs) ecosystem saw a strong financial year (FY27) opening with disbursements rising 20.7% to around ₹1.04 lakh crore in Q1FY27. Disbursements fell 4.6% quarter-on-quarter as volumes of commercial vehicles (CV) began to recover from the pre-buy demand seen during Q4FY26 on a sequential basis. As per an exhaustive report by Centrum, the auto NBFCs posted impressive earnings in the initial quarter of FY27 and set fresh targets.

Sequential drop and YoY growth

The performance was backed by its assets under management (AUM) growth of around 17%, year-on-year. The growth engine for the sector was visibly at an advanced stage, moving away from the commercial vehicle-led surge seen in FY26 and beginning an era of increased width and diversified expansion.

The report highlighted that disbursement growth stayed healthy on a year-on-year basis, sustained primarily by the continuing tailwind from GST rate cuts along with resilient passenger vehicle (PV) and tractor demand. Retail vehicle lending trends ticked down for nearly all car lenders in the business. 

This trending down was examined less as a structural demand shock and more as a natural normalization process after an unusually large Q4FY26. For fleet operators and original equipment manufacturers (OEMs), this period was one for digesting the pre-buy activities of the previous quarter, with festive season restocking expected to accelerate during FY27.

Commercial vehicle withdrawals declined as a cascade among major industry lenders. Cholamandalam’s CV disbursement fell 14.7%, Shriram Finance declined 13.8%, Mahindra Finance contracted 24.9%, and Sundaram Finance shrank 3.5%. 

However, Sundaram Finance was the sole lender to achieve a positive quarter-on-quarter overall growth of disbursal of 11.1%, helped enormously by the robust retail franchise.

Strategic shift and operational performance

Balance sheets showed steady growth for all non-commercial lines of business for the quarter. Lenders took a conscious strategic decision to diversify their portfolios, leading Cholamandalam’s non-vehicle share to more than 40% of total disbursements. Shriram Finance’s non-CV vehicle finance segment grew by 25% year-on-year.

Diversification was the stronger theme this quarter, according to the Centrum report. SME/LAP, gold loans, construction equipment loans, personal loans and home loans experienced a similar uptick in balance sheet share. Most lenders were taking a deliberate approach to reduce the longevity of the traditional vehicle cycle and the wobbling of earnings from a corresponding change in vehicle moderation.

Auto NBFCs’ performance has been remarkable on operational and profitability parameters. Pre-provision operating profit (PPOP) increased by 35.7% to ₹11,771 crore. PAT increased even further, rising by 53.4% YoY to ₹6,519 crore.

On the asset quality front, the parameters continued to remain intact in an annualised sense, although shrinking values could be seen during the seasonally weak monsoon months. In both Stage 2 and Stage 3 this quarter, assets increased at all lenders in the sector quarter-on-quarter. 

However, the quarter-on-quarter asset quality changes, management teams on all auto NBFC groups maintain confidence in growth projections for FY27. Opportunity for mid-teen to low 20s AUM expansion through persistent market share and product diversification.

Conclusion

The first quarter of FY27 is a pivotal moment in the transformation of auto NBFCs. Commercial vehicle financing was temporarily normalised sequentially after seeing robust pre-buying activity in Q4FY26, but the sector’s general financial situation is still quite strong. Lenders have effectively buffered their balance sheets amidst the wind thanks to buoyed demand in the passenger vehicle and tractor-originated categories, while full-scale pivoting toward non-CV avenues like gold loans, personal loans, home loans, SME/LAP, etc., and construction equipment saw them benefit from tailwinds as well.

Auto NBFCs are well-positioned to meet their mid-teens to low20s growth forecasts for the balance of FY27 in view of their year-on-year increase in disbursements by 20.7%, AUM growth by 17%, and robust growth in pre-provision operating profit and PAT.