Festive season, GST cut drive sharp recovery in vehicle financing, say experts

India’s vehicle financing market recorded a revival through the festive season as the GST rate cut on automobiles, implemented on September 22, helped unlock pent-up demand. Banks and NBFCs reported a rise in fresh loan enquiries and disbursals after a brief pause earlier in the month, when customers delayed purchases in anticipation of the tax change.

FADA data indicates steady improvement in retail activity.

Vehicle retails in September 2025 rose 5.22% year-on-year, with two-wheelers up 6.5% and passenger vehicles up 5.8%. Demand strengthened further during Navratri, when overall retails increased 34% from a year earlier.

Wholesale figures from SIAM show a similar trend, with passenger vehicle dispatches up 4.4% year-on-year at 3,72,458 units and two-wheeler volumes higher by 6.7% at 21,60,889 units. The data points to improved consumer appetite supported by easier financing.

Lenders indicate the shift was immediate once the GST change took effect.

IndusInd Bank said vehicle loan disbursements had weakened ahead of September 22 as buyers waited for clarity, contributing to a 4% year-on-year decline in Q2.

Activity rebounded sharply afterward, supported by festive-season purchases and stronger rural demand.

The bank said traction has been visible across passenger vehicles, LCVs, tractors, two-wheelers and three-wheelers, with asset quality remaining stable.

ICICI Bank also reported firmer momentum in vehicle loans, noting that overall loan growth improved to 3% sequentially in the latest quarter, aided by focus on growth segments.

Industry executives view the combination of GST relief, seasonal demand and improving farm incomes as the key drivers of the current uptrend. With disbursements accelerating in October and early November, lenders expect the strength in vehicle finance to continue into the December quarter, barring any sharp shifts in macro conditions.

The recent pickup suggests a supportive backdrop for retail credit expansion, particularly in consumption-led categories that benefit quickly from policy and sentiment changes.Read about our editorial guidelines and ethics policy