With automotive sales losing pace, the auto finance business may hit a bump in FY12.

"Our fortunes are very closely linked to the automobile industry. The industry is showing the first signs of a slowdown, coming off two successive years of high growth. Commercial vehicles sales are likely to be impacted on account of increase in price of vehicles, imminent increase in diesel prices and higher interest rates," said T T Srinivasaraghavan, MD, Sundaram Finance.

Sundaram Finance, a leading NBFC with a significant presence in commercial vehicle (CV) and car finance business, is expecting a decline in the demand for car loans in the current financial year. The NBFC, which has reported 25% growth in its disbursements last year, is expecting lower growth this year. "While we expect modest topline growth this year, we are confident of maintaining profitability at a healthy level," he said.

While the sector has registered 26% growth last year. The slowdown is quite evident from the monthly sales data. In April, (as compared with April 2010) three major automobile companies which include TVS Motor , Maruti Suzuki and Tata Motors have reported negative sales growth.

Ashok Khanna, head of HDFC car loan , feels that the segment may bear the brunt of increase in the price of vehicles as well as rise in the interest rates. "This year is going to be a challenging year for the auto loan sector. There is already a stock pile-up with the dealers and footfalls have also come down. Compared to 30% growth last year, the automobile finance this year may grow only by 12-13 %,"Khanna said.

In the last one year, while the petrol price has gone up seven times by almost Rs 7 a litre, interest rates on auto loans have also increased by 100-150 bps. All the major automobile companies have marginally raised the price of their products in the range of 1-2 %. With headline inflation showing no signs of decline, experts believe that interest rates and prices of automobiles will only increase further, thereby laying further stress on auto finance business.