The growth outlook for Loans against property - LAP segment remains healthy (CRISIL expects 22% CAGR over FY15-19E),
despite the strong performance over the past few years. This is primarily due to a) LAP being positioned as an alternative to traditional SME loans, given its lower cost to the borrower (150-175bps lower rates), and b) higher propensity of financiers towards this product, given sharply lower delinquencies than SME loans (NPA levels largely in line with home loans). Consequently, the growth opportunity remains large – loans to MSMEs form ~8% of overall bank credit. However, as LAP as a product matures and loan books get seasoned,
we expect growth to be more mature and lenders to be distinguished based on quality of portfolios, type of borrowers – as against the current situation, where NPL levels for all players are very low in this segment and distinguishing one lender from the other is relatively difficult.
