India Shelter Finance Navigates Growth and Asset Quality in Q2 FY26

India Shelter Finance Corporation Limited, a prominent player in India's affordable housing finance sector, has released its Q2 FY26 earnings, showcasing robust growth amidst a dynamic market environment. The company reported a significant 31% year-on-year (YoY) increase in Assets Under Management (AUM), reaching Rs. 9,252 crore. Profit After Tax (PAT) also demonstrated strong performance, growing by 35% YoY to Rs. 122 crore, with a Return on Equity (ROE) of 17% on an annualized basis. These figures underscore the company's continued momentum in expanding its footprint and profitability.

The company's operational strategy, centered on serving low- and middle-income segments in Tier 2 and Tier 3 cities, continues to drive its growth. Disbursements for Q2 FY26 stood at Rs. 931 crore, a 12% increase YoY. While this growth was slightly moderated compared to previous quarters, management expressed confidence in a stronger second half, aligning with historical trends. The portfolio yield remained stable at 14.9%, contributing to a 30% YoY increase in total income. India Shelter's granular portfolio, with an average ticket size of Rs. 10 lakh, is primarily focused on self-employed customers, who constitute 75% of its borrower base.

| Financial Summary (Q2 FY26) | |---|---| | AUM | Rs. 9,252 Crore | | Disbursement | Rs. 931 Crore | | PAT | Rs. 122 Crore | | ROA | 5.8% | | ROE | 17.0% | | Net Worth | Rs. 2,915 Crore | | Gross Stage 3 | 1.2% | | Net Stage 3 | 0.9% | | CRAR | 57.1% |

Asset Quality and Risk Management

Despite the positive growth, the earnings call highlighted some emerging trends in asset quality. The 30+ DPD (Days Past Due) increased to 4.7% in Q2 FY26 from 3.1% in Q4 FY25, and Stage-2 assets also saw an uptick. Management attributed this to a combination of seasonality and broader industry-wide 'heat' affecting sectors like Micro LAP and MFI, which can have spillover effects. Localized stress pockets were identified in regions such as Chennai, Surat, and Tirupur, primarily due to tariff-related issues.

However, management emphasized its robust underwriting and risk management framework, which has remained resilient across business cycles. Gross Stage 3 and Net Stage 3 remained stable at 1.2% and 0.9% respectively, consistent with the previous year. The Provision Coverage Ratio (PCR) for Stage 3 assets stood firm at 25%. The company's access to SARFAESI tools and a focus on maintaining lower LTVs (Loan to Value) for its Loan Against Property (LAP) portfolio (averaging 45%) are critical in managing potential slippages and ensuring effective recoveries. The overall LGD (Loss Given Default) remains in the range of 11%-12%.

Funding and Operational Efficiency

India Shelter has made significant strides in diversifying its funding profile and optimizing its cost of funds. The company's average borrowing tenure is approximately 8 years, and its bucket cost of funds improved by 10 basis points quarter-on-quarter to 8.5%. This improvement is expected to continue, with management projecting another 20 basis point reduction by year-end. The company has successfully diversified its borrowing sources across more than 30 counterparties, securing new sanctions from both the National Housing Bank (Rs. 550 crore) and SIDBI (Rs. 500 crore), further strengthening its liquidity position.

Operational efficiency is a key focus, with the company leveraging technology extensively. Digital collections account for 95% of total collections, and 99% of applications are processed through e-signing. The company's in-house Business Rule Engine and extensive database enable real-time compliance and prompt loan approvals. The Opex to AUM ratio improved to 4.1% in Q2 FY26 from 4.4% in Q2 FY25, and the Cost to Income ratio stood at 35.5%, down from 37.3% in the prior year, reflecting better cost management.

Strategic Outlook and ESG Commitments

Looking ahead, India Shelter aims to maintain its AUM growth trajectory of 30-35% for the next couple of years, supported by continued branch expansion (targeting 40-45 new branches annually) and deepening penetration in existing markets. The company is also committed to its ESG initiatives, having disclosed its Business Responsibility & Sustainability Report for FY25, including Scope 1, 2, and 3 emissions. Efforts include collaborating with IFC for Green Housing Certification and significant tree plantation drives.

India Shelter Finance Corporation Limited demonstrates strategic clarity and disciplined execution. Despite navigating industry-wide challenges and localized asset quality concerns, its robust growth, stable core asset quality metrics, and proactive funding and operational strategies position it well for sustained performance in the underserved affordable housing market. The management's focus on technology, diversified funding, and employee engagement reinforces investor confidence in its long-term vision.