India Shelter FY26: Growth, spreads and a cautious underwriting stance

India Shelter Finance Corporation ended FY26 with another year of high growth and high profitability. Gross AUM rose 29% year on year to Rs. 11,044 crore, while profit after tax increased 33% to Rs. 503 crore. In Q4, the company crossed Rs. 1,000 crore of disbursements for the first time and reported PAT of Rs. 138 crore, up 27% year on year.

The quarter also showed improving operating leverage, with opex to gross AUM at 3.9% versus 4.1% in Q4FY25, even as the company continued its branch expansion program. Management highlighted that the operating environment remains watchful, especially in rural and semi-urban markets, but reiterated a return-first growth strategy rather than pushing volume at any cost.

The model: granular secured lending in tier 2 and tier 3 India

India Shelter focuses on affordable home loans and loan against property in tier 2 and tier 3 geographies. As of March 31, 2026, it operated in 15 states through 307 branches and served 1,38,371 customers. The company highlighted a granular book with an average ticket size of about Rs. 10 lakh and a portfolio LTV of 52%, with a fully secured book.

Product mix remained steady. On AUM, home loans were 56% and LAP 44% as of March 2026 (March 2025: 57% and 43%). Management indicated that disbursement mix is also broadly aligned, with home loans around 56% to 57% and the remainder LAP. The portfolio continues to be dominated by self-employed borrowers, with the presentation showing self-employed at 76% and tier 3 at 57%.

FY26 performance: growth with profitability and improving operating leverage

The company’s income profile expanded sharply with AUM growth and stable spreads. For FY26, total income was Rs. 1,528.6 crore, up 30% year on year, while net total income increased 32% to Rs. 1,084.8 crore. PAT rose to Rs. 503.1 crore, and return ratios remained elevated, with FY26 ROA at 5.8% and ROE at 17.0%.

Cost of funds was a key support. As of March 2026, cost of funds improved to 8.2%, with spreads stable at 6.6%. Management also cited marginal cost of funds at 7.9% and noted NHB drawdowns at 7.5% during the quarter. The liability franchise is diversified across banks and financial institutions, NHB, direct assignment, SIDBI, PTC, ECB and NCD, with an average borrowing tenure of 8 years and 32 lender relationships.

Two line items remain important for understanding earnings. Net gain on direct assignments was Rs. 146.4 crore in FY26 (Rs. 34.4 crore in Q4), reflecting the company’s use of assignment transactions as part of its liability and regulatory strategy. The company also reported a cost to income ratio of 36.1% for FY26, down from 37.3% in FY25.

Asset quality: stable headline NPAs, higher buffers

India Shelter ended March 2026 with gross Stage 3 at 1.2% and net Stage 3 at 0.9%. While this is slightly higher than March 2025 (gross 1.0%, net 0.8%), Q4 saw improvements from Q3 levels. 30+ DPD improved to 4.0% from 5.0% in Q3, and collection efficiency was shown at 100% for Q4.

The ECL table shows Stage 2 at 3.3% of the portfolio at March 2026, up from 2.7% a year earlier. In the concall, the CFO stated that the company applied a management overlay of an additional 2% provision on Stage 2 assets, impacting Q4 credit cost by about Rs. 5 crore. FY26 credit cost was 0.5%, and management guided a medium-term range of 40 to 50 bps.

Management also described a conservative stance on new underwriting due to the broader macro environment. The MD and CEO stated that the normal login-to-sanction ratio of 55% to 58% dropped below 50% and even bottomed at 40% to 43%, before inching up to 45% to 47%.

What management is guiding for FY27 and beyond

India Shelter reiterated a consistent operating playbook built on branch expansion, stable spreads, and controlled credit cost. Management guidance included:

• Branch additions of around 40 to 45 in FY27
• Maintain spreads above 6% in the medium term
• Credit cost to remain between 40 to 50 bps
• Loan growth of 25% to 30% for the next 3 years
• A stated goal of reaching Rs. 30,000 crore AUM by 2030

The company also discussed balance sheet capacity. CRAR remains high at 55.8% at March 2026, with leverage at 3.0x. Management stated a preference to increase leverage toward 4.0x to 4.5x before considering capital raising options such as a QIP.

On co-lending, management clarified that it is not a key driver in near-term planning. They said they are not including co-lending in the budget and view it as a testing initiative rather than a core growth lever at this stage.

Takeaways

FY26 reinforced India Shelter’s ability to grow quickly while maintaining strong returns and stable spreads. The company’s consistent branch rollout, granular ticket size, diversified funding mix, and high digitization levels support scalability. At the same time, management’s commentary signals a cautious underwriting posture in response to macro uncertainty, visible in lower conversion ratios and additional Stage 2 provisioning overlays.

The key monitorables going forward are the trade-off between conservatism and growth, the trajectory of Stage 2 and Stage 3 metrics, and the sustainability of spreads above 6% as the rate cycle evolves. The company’s medium-term targets, including the Rs. 30,000 crore AUM goal by 2030, will depend on maintaining this balance.