Higher Demand For Retail Loans In Tier II Cities
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Higher demand for retail loans in tier II cities

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Rising income levels and a greater propensity to consume in India's tier-2 cities has created an attractive opportunity for retail finance players, a CRISIL study has said.

The study, retail loan products: opportunities and risks beyond the metros and mini-metros, has detailed the current market opportunity, growth prospects, emerging competitive scenario and key operating parameters such as finance penetration, average ticket size, loan to value ratio and non-performing assets in these cities.

The report has considered these parameters for five retail loan products including home loans, loan against property (LAP), car loans, two wheeler loans, and gold loans.

The markets it has covered include Bhopal, Coimbatore, Indore, Jaipur, Kanpur, Kozhikode, Lucknow, Ludhianna, Madurai, Mysore, Nagpur, Nashhik, Rajkot, Thiruvananthapuram, and Vishakhapatnam. These markets are significant in terms of size and together account for about 15 per cent of the demand for retail loans in India, the report said.

CRISIL Research believes that growth prospects in many of these markets are extremely strong. According to the report car loan disbursements in 10 of the 15 markets assessed are expected to clock a 20 per cent compounded annual growth rate (CAAGR) over the next 2 years as compared to 13 per cent CAGR in the larger cities. In 7 of these tier 2 cities, LAP disbursements would grow faster than the rest of India, the report said.

Gold loans are expected to grow at a much faster pace (more than 50 per cent annually) in five non--southern cities assessed. Stronger growth prospects, lesser competition, higher yields and profitability comparable to the larger cities make tier 2 markets an extremely attractive proposition for financiers, explained Prrasad Kopparkar, Head Industry & Customised Research at CRISIL Research.

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