LIC Housing Finance Navigates Competitive Waters with Strategic Overhaul in Q2 FY26

LIC Housing Finance Limited (LICHFL) has reported a quarter of strategic recalibration amidst a challenging yet resilient market. For the second quarter of fiscal year 2026 (Q2 FY26), the company posted a Profit After Tax (PAT) of Rs. 1,353.87 crore, marking a 2% increase year-on-year. Total revenue from operations also saw a modest rise of 3% to Rs. 7,163 crore. While these figures indicate steady financial health, the underlying narrative reveals a company actively addressing growth stagnation and intense market competition.

The outstanding loan portfolio expanded by 6% to Rs. 311,816 crore as of September 30, 2025, with individual home loans constituting a dominant 84.7% of this portfolio. Disbursements in the individual home loan segment grew by 3% year-on-year to Rs. 13,490 crore, and a robust 24% quarter-on-quarter, signaling a pickup in demand. However, the project finance segment experienced a significant contraction, with disbursements plummeting to Rs. 378 crore from Rs. 1,397 crore in the prior year. This decline reflects LICHFL's cautious and selective approach in this high-risk segment, prioritizing margins over aggressive growth. The company's Net Interest Income (NII) for Q2 FY26 stood at Rs. 2,038 crore, a 3% increase from Q2 FY25, though Net Interest Margins (NIMs) slightly compressed to 2.62% from 2.71% in the corresponding period last year.

Strategic Initiatives to Re-energize Growth

Management openly acknowledged the challenge of flat growth, particularly due to increased balance transfers (BT outs) to aggressively priced PSU banks. To counteract this, LICHFL has recently recalibrated its rewriting rates, bringing them down significantly to be more competitive, aiming for around 8% for balance transfers. This move has already shown positive early signs in October, with BT outs returning to more normalized levels. Beyond pricing adjustments, the company is embarking on a multi-pronged strategy for growth.

A key initiative involves a comprehensive re-structuring of the company's operations. Guided by its Board, LICHFL is undertaking a detailed review of its office locations, distribution channels, and overall organizational structure. This exercise, expected to take three to six months with the help of a consultant, aims to identify and address internal impediments to growth and enhance productivity. Concurrently, LICHFL is actively developing alternate business channels. The direct lead generation business, which contributed Rs. 750 crore in H1 FY26, is targeted to reach Rs. 2,000 crore for the full year. The company is also strengthening its 100% subsidiary, LICHFL Financial Services Limited (FSL), aiming for it to contribute 15% of total business this year and 25% next year. These channels are crucial for reducing the over-reliance on agency business, which currently accounts for approximately 87% of customer acquisition.

Asset Quality and Funding Profile Remain Robust

Despite the growth challenges, LICHFL's asset quality has shown consistent improvement. Stage-3 exposure at default decreased to 2.51% as of September 30, 2025, from 3.06% a year ago, reflecting a sustained positive trend over the past four to five quarters. Total Expected Credit Loss (ECL) provisions stood at Rs. 5,074 crore, resulting in a strong provision coverage ratio of over 53%, up from 49% last year. The management attributes this improvement to ongoing recovery efforts, particularly for legacy loans, and expects further reductions in credit costs, targeting a range of 50 basis points for the full year.

On the liability front, the company's weighted average cost of funds saw a favorable decline to 7.42% as of September 30, 2025, from 7.73% in the previous year. The incremental cost of funds for Q2 FY26 was even lower at 6.73%. Management anticipates a further 10-12 basis points reduction in the cumulative cost of borrowing by March. This disciplined approach to funding, coupled with a stable Capital Adequacy Ratio (CAR) of 23.20% (Tier I at 21.70%), underscores LICHFL's robust financial foundation.

Outlook: Cautious Optimism and Strategic Clarity

LICHFL's management maintains a cautiously optimistic outlook, expecting Q3 and Q4 to be stronger quarters, traditionally. They are confident that the green shoots observed in Q2, particularly the 24% quarter-on-quarter growth in retail disbursements, will continue. The company aims to achieve double-digit growth in both disbursements and its loan book by the fiscal year-end. Furthermore, LICHFL is strategically shifting its product mix to focus more on the self-employed and affordable housing segments, where competition might be less intense, and is establishing a dedicated team for this vertical, albeit with a longer-term timeline of two to three years.

The quarter's theme for LICHFL is one of strategic clarity and disciplined execution. By proactively addressing competitive pressures, undertaking a comprehensive internal review, and exploring new growth avenues, the company is positioning itself for sustained, profitable growth in the dynamic Indian housing finance market. The focus remains on balancing growth with maintaining healthy margins and robust asset quality, reinforcing investor trust in its long-term trajectory.