- LIC Housing Finance is shifting focus to high-yield non-housing assets and improving sales productivity
- Q1 disbursements rose 14% YoY, with non-housing loans aimed to reach 20% of total
- Project finance surged 400% YoY, while affordable housing is deprioritized
LIC Housing Finance (LICHF) is recalibrating its core operating model under its new executive leadership, seeking to sustain double-digit disbursement growth while aggressively plugging balance-transfer leaks and defending profitability. LIC Housing Finance is eyeing a structural mix-shift toward high-yielding non-housing assets, and an overhaul of its agency sales model, while carefully defending balance sheet quality and margins.
Following high-level management meetings with the leading lender's new Managing Director and CEO, Sandeep Kumar, and Chief Financial Officer, Lokesh Mundhra, global institutional brokerage Citi noted that the mortgage financier is orchestrating an operational shift not just toward the high-yielding non-housing assets, but also to project finance alongside an extensive overhaul of internal sales productivity.
Overhauling Distribution and Shifting Asset Mix
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At the center of management's growth agenda is a multi-year digital transformation combined with an externally guided human resources reorganization. Central to this plan is an upgraded agent-activation framework that sets a baseline productivity target of at least one sanctioned loan per agent each month.
Early returns from the push have been positive, with disbursements climbing by over 14% year-on-year in the first quarter, according to Citi. To enhance margin sustainability, LICHF is steering away from a near-exclusive dependence on pure-play home loans.
Non-housing retail offerings-specifically loan against property (LAP) and lease rental discounting (LRD)-accounted for 14% of individual disbursements in Q1. Management aims to elevate this share to 20% by the end of the fiscal year, allowing the share of pure individual home loans (IHL) to moderate from above 84% to roughly 81%.
Reviving Project Finance While Shelving Affordable Housing
Project finance has emerged as a major growth engine, recording a surge of more than 400% year-on-year in Q1. Management plans to double annual project disbursements compared to the prior year. To prevent asset quality deterioration, the company has instituted strict underwriting guidelines, requiring a minimum external credit rating of 'BBB' on developer exposures exceeding Rs 500 million.
Average yields on this book exceed 10%, offering vital margin support. Conversely, affordable housing has been placed on the back burner, with leadership characterizing the segment as a longer-term aspiration rather than an immediate strategic priority.
Battling Portfolio Attrition to Protect AUM Growth
Despite robust front-end disbursement momentum, overall asset-under-management (AUM) expansion continues to face persistent drag from structural portfolio attrition. Balance-transfer (BT) outflows currently average roughly Rs 100 billion per month against inflows of Rs 50 billion, creating a net monthly contraction run-rate of Rs 50 billion. To counteract this churn, LICHF has deployed a dedicated retention desk that now claws back approximately 25% of outward balance-transfer cases.
Simultaneously, the company has ramped up its internal 'rewrite' refinancing program to retain existing accounts on recalibrated terms, processing 150,000 cases worth Rs 48 billion in FY26, alongside another 31,000 cases in Q1 alone. Analysts at the brokerage anticipate that AUM growth will follow a gradual glide path toward high single digits as management balances volume expansion against balance-sheet margins.
Defending Margins via Agile Funding and Yield Offsets
Net interest margin (NIM) contracted by 22 basis points quarter-on-quarter to 2.58% in Q1, pressured by overall portfolio yield compression to 9.12% and an incremental borrowing cost uptick to 7.06%. While incremental disbursement yields stand compressed at 8.25%-reflecting competitive headline home loan pricing starting at 7.15% to match public sector banks-management reaffirmed its full-year NIM guidance of 2.5% to 2.6%.
The margin outlook is underpinned by attractive bank borrowing rates of 7.2%, which offer a clear advantage over AAA corporate bond rates that remain above 8.0%. Management also expects Foreign Currency Non-Resident (FCNR) inflows to ease borrowing costs further into the third quarter. Furthermore, an agile repricing structure-under which one-third of the book resets monthly and two-thirds quarterly-allows swift transmission of borrowing cost movements.
Asset Quality Cleanup and Valuation Outlook
Asset quality metrics are poised for an optic improvement over the coming quarters. The reported Gross Stage 3 (GS3) and Gross Stage 2 (GS2) ratios stood at 2.14% and 2.60% respectively in Q1, heavily skewed by legacy commercial developer exposures; the retail home loan book remained solid, logging a GS3 of just 1.09%.
Management has set an explicit target to bring gross NPAs below 1.9% by fiscal year-end and below 2.0% GS3 by the close of FY27. Key resolution triggers include an anticipated Q3 upgrade of a large, restructured developer account valued at Rs 4.5 billion to Rs 4.6 billion following an auditor-mandated cooling-off period. A separate Rs 30 billion pool of written-off developer accounts also offers room for non-linear recoveries.
Citi has assigned a target price of Rs 710 per share on the stock, derived from a two-stage Gordon Growth model reflecting a target multiple of 0.8x September 2027 book value per share. The brokerage highlighted competitive balance-transfer pressures, NIM volatility, and balance-sheet leverage exceeding 10x as key downside risks.
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