Non-Banking Financial Companies (NBFCs) are increasingly favouring the Small Ticket Loan Against Property (S-LAP) segment over medium ticket loans. The market potential for S-LAP is estimated at a substantial Rs 22 lakh crore, with lenders having tapped only around Rs 1.8 lakh crore as of March 2023, reflecting a penetration rate of less than 10 per cent, according to an ICICI Securities report.
The S-LAP market is currently concentrated in five states, namely Maharashtra, Tamil Nadu, Gujarat, Karnataka, and Rajasthan, accounting for a significant 53 per cent of the total market. Among the leading players in the S-LAP domain are Shriram Finance, AU Small Finance Bank, and Equitas Small Finance Bank.
A recent report focusing on S-LAP loans with a ticket size of less than Rs 15 lakh reveals that the total outstanding loans for 16 leading financiers stand at approximately Rs 1 lakh crore. However, as per CRISIL MI&A, the overall market potential for S-LAP is much higher at Rs 1.8 lakh crore, indicating a robust growth potential.
Growth momentum
Despite the current penetration rate being below 10 per cent, financiers anticipate strong growth momentum in the S-LAP segment. The total outstanding loans for the covered lenders include secured LAP of less than Rs 15 lakh, and the report suggests that even with the inclusion of MSME loans of up to Rs 30 lakh, the total loans stand at Rs 2.5 lakh crore as of March 2023.
The top five states continue to dominate the outstanding loans, contributing to approximately 53 per cent of the market. This state-wise diversity highlights the persistence of credit penetration disparities across regions. While overall S-LAP penetration remains low, the analysis indicates that penetration in the top five states exceeds 20 per cent, emphasising the concentrated growth in specific regions.
In terms of district-wise analysis, even in highly-penetrated states such as Maharashtra, Gujarat, Telangana, and Karnataka, the top five districts account for over 60 per cent of loans in the Rs 5-30 lakh ticket size range. This indicates the potential for further penetration and expansion in states with an overall penetration of more than 20 per cent.
The S-LAP market is witnessing a strong push from NBFCs, capturing over 50 per cent of the market share in secured MSME loans below Rs 30 lakh. SFBs are also actively participating in this segment, leveraging their branch networks and cost-of-fund advantages over NBFCs. Market leaders in this space, including Shriram Finance, AU Small Finance Bank, and Equitas Small Finance Bank, have demonstrated impressive compound annual growth rates (CAGR) exceeding 25 per cent between FY20 and FY23.
