Lending institutions have seen a steady growth in the loan against property (LAP) segment. This is a secured loan in which you can mortgage your property to the lender and borrow against it. The loan amount will depend on the value of the property, which, in turn, depends on factors such as location, age of the property and quality of construction.
According to a report by Nomura, LAP is set to grow at a faster pace than retail credit growth, and is already 20% of the mortgage business. The LAP segment’s size is Rs2.3 trillion—a 30-35% compounded annual growth rate over the past three-four years, according to rating agency Crisil Ltd. Bankers and non-banking finance companies (NBFCs) expect to see a steady growth in this segment.
For financial institutions, LAP is a big opportunity. “This is a big business and has a potential to grow 30% a year,” said Arvind Kapil, senior executive vice-president and business head-unsecured loans, home and mortgage loans, HDFC Bank Ltd. The bank’s LAP book is worth about Rs22,000 crore.
For some companies, the growth in LAP has been as per their overall business strategy. “LAP has always been a part of our overall business strategy and has been growing steadily. We have been growing at 16-20% ever year. Our loan book under management is worth around Rs5,700 crore. Of this, 20-22% is from LAP,” said Harshil Mehta, chief executive officer, Dewan Housing Finance Corp. Ltd (DHFL), an NBFC.
In case of Indiabulls Housing Finance Co. Ltd, which has an overall loan book of Rs5,300-5,400 crore, the LAP segment constitutes 20-27%. “We have seen an overall growth of 20% in LAP year-on-year,” said Sachin Chaudhary, mortgage business head, Indiabulls Housing Finance.
In case of DCB Bank Ltd, which is more aggressive in this space than other banks, even the bigger ones, 70% of its overall mortgage business comes from LAP. “We see more potential in the segment,” said Pravin Kutty, head-retail and small and medium enterprise banking, DCB Bank, adding that this (mortgaging property) is an easy way for those who are self-employed to raise capital for their business needs.
While many take LAP to fund big-ticket expenses such as foreign education or even weddings, most take it to meet business needs. While salaried individuals find it easier to get, say, a personal loan, lenders are not so forthcoming with a self-employed person.
Here’s a look at what banks and NBFCs offer in this segment, and what you should know before taking such a loan.
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Reference
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