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Time of India
16-05-2025
- Business
- Time of India
Non-bank lenders 'LAP' up opportunity to tap MSMEs
In the absence of banks, which focus on loans of Rs 15-20 lakh, NBFCs are finding growth opportunities in the high yielding micro-LAP (loan-against property), which are sub-Rs 10 lakh loans. Industry executives said that there are growth opportunities given that the MSME sector remains starved for credit. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Mumbai: Non-bank finance companies have stepped up lending to micro, small and medium enterprises ( MSMEs ), with the rate of growth in such advances outpacing commitments by commercial banks to this category of be sure, non-bank lenders are focusing on collateral-backed loans below '10 lakh-a space and ticket-size banks might not find too attractive for direct the absence of banks, which focus on loans of '15-20 lakh, NBFCs are finding growth opportunities in the high yielding micro-LAP (loan-against property), which are sub-'10 lakh loans. Industry executives said that there are growth opportunities given that the MSME sector remains starved for credit. Kirti Timmanagoudar , head of strategy and co-lending at IIFL Finance , said that most micro-LAP borrowers are from economically weaker sections and low-income groups. These borrowers may not have the conventional documents that banks seek, hence, underwriting has to go beyond traditional methods such as assessments of inventory to estimate cash flows."This is where NBFCs have developed expertise with on-field experience in dealing with small units in different clusters across the country. Additionally, for banks secured loans below '10 lakh do not qualify as PSL (priority sector lending)," Timmanagoudar said. "We have seen a section of microfinance borrowers graduating to retail loans and the micro-LAP product is a logical first step. We take residential property as collateral, which acts as a moral obligation for the borrowers to make timely repayments."According to a recent study by Small Industries Development Bank of India, while there has been an increase in credit supply to MSMEs, the sector still has an addressable credit gap of about Rs30 lakh share of MSME credit in NBFCs' overall loan portfolio rose from 5.9% in FY21 to 9.1% at end of September 2024. In the same period, banks maintained relatively stable MSME exposure, in the range of around 16-17%, according to a report by rating agency CareEdge . MSME lending by NBFCs grew 32% annually compared to 21% for private banks and 10% for the public sector banks between FY21 and FY24, it NBFC growth is on a smaller base, government initiatives like Udyam registration, GST Sahay , and credit guarantee schemes, among others, are giving confidence for lending, said industry command as high as 45% market share in the micro-LAP segment. The loans are given with self-occupied residential or even commercial property as the collateral. This is also a high yielding business, ranging 16-18%, because operational expenditure and credit costs tend to be on the higher MSME Loan Against Property (LAP) market has grown over 50% from '7.5 lakh crore to '11.3 lakh crore over the two years ending September this market, the micro-LAP rose by 60% to '1.6 lakh crore in the same period, according to CareEdge ratings agency expects this segment to be 25% each in FY25 and FY26.
India Gazette
16-05-2025
- Business
- India Gazette
NBFCs outpace banks in lending MSMEs, growth will continue to persist: CareEdge
New Delhi [India], May 16 (ANI): Lending by MSMEs witnessed robust growth in recent years, with Non-Banking Financial Companies (NBFCs) emerging as the front-runners, outpacing the growth rates of both private and public sector banks, according to CareEdge Ratings. Between 2020-21 and 2023-24, NBFCs recorded a 32 per cent compound annual growth rate (CAGR) in MSME lending, albeit on a smaller base, compared to 20.9 per cent for private banks and 10.4 per cent for public sector banks. The share of MSME credit in NBFCs' overall loan portfolio rose from 5.9 per cent in 2020-21 to 9.1 per cent in the first half of 2024-25, an increase of over 50 per cent, as per a report from the rating agency. Over the same period, the banks maintained relatively stable MSME exposure, ranging from 16.2 per cent to 16.9 per cent. Looking ahead, this growth trajectory is expected to persist, with NBFCs projected to grow at 20 per cent, private banks at 15 per cent, and public sector banks at 10 per cent during 2024-25 and 2025-26. In 2025-26, the asset under management in the MSME space for NBFCs is expected to cross Rs 5.3 lakh crore against an estimated loan book of Rs 4.4 lakh crore in the just-concluded financial year 2024-25. 'This expansion has been underpinned by a supportive ecosystem, including initiatives such as Udyam registration, GST Sahay, TREDS, and the development of digital public infrastructure, alongside enabling policy measures and credit guarantee schemes,' CareEdge Ratings asserted. The rating agency said India's MSME sector, comprising nearly 63 million enterprises, presents a significant growth opportunity of more than Rs 18 lakh crore. With the ongoing formalisation of the economy and increasing adoption of digital technologies, it is expected that a growing share of currently informal credit demand is expected to transition into the formal financial system. (ANI)
