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

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.