Small loans against property begin to sour for non-banks

Indian lenders are seeing the stress in their microfinance books gradually spread to their secured portfolios as overleveraged customers delay repayments. This comes less than a year after the Reserve Bank of India warned of a spillover.

- Subhana Shaikh

LAP is a secured loan in which borrowers pledge residential or commercial property as collateral.

(MINT)

Earnings commentary from non-banking financial companies (NBFCs) and some housing financiers for the September quarter showed that delinquencies in small-ticket loans against property (LAP) were rising. This is a sign that pressure is now spreading beyond unsecured microfinance into what was once considered a relatively stable asset class, analysts said.

LAP is a secured loan in which borrowers pledge residential or commercial property as collateral. Such loans typically cater to self-employed individuals and small businesses, with average ticket sizes ranging from ₹10-75 lakh, depending on the lender and market segment.

Micro-LAP is a small-ticket version of LAP, targeted at micro-entrepreneurs, shop owners and informal-sector businesses seeking secured funding. These loans generally range from ₹2-10 lakh, with some lenders offering average ticket sizes of ₹3-5 lakh.

For NBFCs, growth in the LAP segment was about 32% on year in fiscal year 2025 (FY25) and is expected to slow down to 27-29% on year in the current and next financial year, according to Crisil Ratings. NBFCs' unsecured microfinance loan growth declined by 12% in FY25 after growth of 29% in FY24, ICRA said. It has projected this loan book will grow 10-15% in FY26. Similar data for the micro-LAP segment is not readily available.