Pessimism, however, seems to be creeping in slowly as lenders slash their overall growth expectations. Both the macro scene and the micro economy look quite bleak, they say. And analysts are clueless when uncertainty will lift.

Umesh Revankar, deputy managing director, Shriram Transport Finance, says the company had to revise down loan growth targets to 10% for the rest of the fiscal (2011-12) from 20% estimated earlier. He expects the firm to notch up 15% growth in FY13.

Till October, most NBFCs were extremely positive about the rural demand and its positive impact on overall credit growth. Some even believed that rural India would prove a better bet than cities and towns, in tune with India’s growth story.

Rural demand which was able to sustain sales of small vehicles so far, is slowing down, mainly due to inflation and weakening of rural people’s purchasing power, says Revankar.

As if such twin headaches are not enough, V Lakshmi Narasimhan, chief financial officer, Magma Fincorp, talks of a two-fold worry for industry. The first fold is the general economy with its dampened sentiment; the second is the rising interest cost.

Currently, we have a cost of fund around 10.3%, says Narasimhan.

Magma has interests in funding for commercial vehicles, construction equipment, autorickshaws and multi-utility vehicles, tractors, used commercial vehicles and small and medium enterprises. For the seven months so far this fiscal, loans relating to commercial vehicles have grown about 14%. I would be happier if it (the loan growth rate figure) does not turn negative next year, but there is a fair chance (it will), says Narasimhan.

Even in terms of vehicle sales, the year so far has been no more than a mixed bag. Passenger vehicle sales have been disappointing while commercial vehicle sales rose.

The overall sales growth rate recorded for April-November 2011 stands at 13.08%. November 2011 registered a growth of

22.22% over sales in November 2010.

Such seemingly healthy figures, however, need to be taken with a pinch of salt as much of the growth in the commercial vehicles segment is due to the low base from the previous year.

Vineet Hetamasaria, vice president, research, Pioneer Investcorp or PINC, an integrated financial services company, says, If you look at the growth in the heavy commercial vehicles on a sequential basis, we have seen some pain.

Unlike other lenders with country-wide focus, companies with accent on rural and semi-urban areas still expect rural growth to sustain their growth rate.

For example, Mahindra & Mahindra Financial Services posted 38% growth on a loan book at Rs17,000 crore. Typically, the second half is good for rural markets due to festivals, weddings, harvest, which is why we are positive about growth opportunities there, says Ramesh Iyer, managing director, M&M FS.

Wait a second, the car loan business is not volume-driven, point out some industry players. Rather, it depends on the quality of the loan book, they stress.

We will try and be more vigilant in disbursing loans while being proactive on recoveries. The business can be sustained in difficult market conditions only if the quality of the loan book is good, says N Sivaraman, president and whole-time director, L&T Finance.
He expects to clock in 12-15% credit growth next year in spite of the not-so-encouraging outlook for FY13.

But M&M and L&T are not exactly representative of the industry’s health. While M&M benefits from its parent’s retail network to fund used car purchases, L&T’s prudence in maintaining loan quality assures it an optimistic outlook. Other auto lenders do not enjoy such benefits. Hence their punctured hopes.