Synopsis: Rising loan defaults in India's two-wheeler financing sector have led financiers to tighten credit policies. This includes reducing loan-to-value (LTV) ratios and shortening loan tenures, particularly affecting entry-level motorcycle segments and manufacturers like Hero MotoCorp. These measures are expected to further challenge an industry already experiencing declining sales.
The two-wheeler industry in India is facing a dual challenge: escalating loan defaults and declining sales.
In response, financiers are implementing stricter credit policies to mitigate risks associated with rising delinquencies.
Recent data indicates a significant increase in loan defaults within the two-wheeler segment.
According to a report by CRIF Highmark, delinquencies in the 31-180 days past due (DPD) category rose to 5.8% in September 2024, up from 5.1% in June 2024.
The report also highlighted that loans with ticket sizes between Rs. 75,000 and Rs. 1 lakh exhibited the highest early-stage delinquencies.
To address this growing concern, financiers, especially non-banking financial companies (NBFCs) and captive finance arms of two-wheeler manufacturers, have adopted more stringent lending practices.
These measures include reducing loan-to-value (LTV) ratios and curtailing loan tenures. For instance, Hero FinCorp, the financing arm of Hero MotoCorp, has decreased its LTV from 85-90% to 70% over the past three months and shortened loan tenures from 24 to 18 months.
The impact of these tightened credit policies is more pronounced in the entry-level motorcycle market, particularly models with 100cc-110cc engines.
Manufacturers with significant exposure to this segment, such as Hero MotoCorp, are experiencing more substantial effects.
In contrast, companies like Honda Motorcycle & Scooter India (HMSI), which derive about 70% of their sales from urban areas where entry-level models constitute only 6-7% of sales, have remained relatively unaffected by the credit squeeze.
The tightening of credit policies comes at a time when the two-wheeler industry is already grappling with declining sales.
In February 2025, two-wheeler sales fell by 6% year-on-year to 1.35 million units, according to data from the Vahan portal.
Specifically, Honda Motorcycle & Scooter India reported a 7.91% decline in total two-wheeler sales in February 2025 compared to the same month in the previous year.
Similarly, Bajaj Auto's domestic two-wheeler sales dipped by 14% in February 2025 compared to February 2024.
Conclusion:
The convergence of rising loan defaults and declining sales has compelled two-wheeler financiers to tighten credit policies, particularly affecting entry-level motorcycle segments.
While these measures aim to mitigate financial risks, they also pose additional challenges to an industry already facing headwinds.
Manufacturers and financiers must navigate this complex landscape carefully to sustain growth and maintain financial stability.
Disclaimer: The information provided in this article is based on available data as of March 5, 2025. Market conditions and financial policies are subject to change. Readers are advised to consult official sources or financial advisors for the most current information.
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