LIC HFL's H1 spread narrows as lending yield falls faster
Key highlights
- LIC HFL’s H1 FY27 spread narrowed 23 bps year on year to 1.75% as lending yield fell 36 bps to 9.04%, faster than funding cost, which declined 13 bps to 7.29%.
- H1 FY27 net interest margin declined 8 bps to 2.57%, while net profit rose 10% to Rs 2,997.10 crore.
- Total H1 FY27 disbursements increased 13% to Rs 33,140 crore, driven by a 169% rise in project-finance disbursements to Rs 1,436 crore.
- LIC HFL’s Stage 3 exposure declined to 2.05% in September 2026 from 2.51% a year earlier, although Stage 3 provision coverage fell to 49% from 53%.
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LIC Housing Finance Ltd reported a 1.75% spread in H1 FY27, down from 1.98% a year earlier, as its annualised yield on advances fell 36 basis points (bps) to 9.04%, while its weighted average cost of funds declined 13 bps to 7.29%. LIC HFL’s net interest margin was 2.57%, versus 2.65% in H1 FY26.
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How much did LIC HFL's lending spread narrow in H1 FY27?
LIC HFL’s spread narrowed by 23 bps to 1.75% in H1 FY27 from 1.98% in H1 FY26. The H1 FY27 spread reflected a 9.04% yield on advances and a 7.29% weighted average cost of funds, compared with a 9.40% yield and 7.42% funding cost a year earlier.
The decline in yield exceeded the reduction in funding cost by 23 bps. Net interest margin, or NIM, declined by a smaller 8 bps year on year to 2.57%; the presentation reports NIM separately from the spread calculated from portfolio yield and funding cost.
LIC HFL reported a quarterly NIM of 2.58% in both Q1 FY27 and Q2 FY27. That level was below 2.69% in Q3 FY26 and 2.80% in Q4 FY26, while the first two FY27 quarters showed no sequential change in the reported NIM.
What changed in LIC HFL's funding costs?
LIC HFL’s weighted average cost of funds was 7.29% in H1 FY27, compared with 7.42% in H1 FY26, although it rose marginally from 7.28% in Q1 FY27. The reported cost had declined from 7.76% in FY24 and 7.73% in FY25 to 7.27% in FY26.
The company reported an incremental cost of funds of 6.91% during Q2 FY27, below the 7.29% weighted average portfolio cost reported for H1 FY27. The presentation discloses both measures but does not quantify how the Q2 incremental cost would affect subsequent portfolio funding costs or NIM.
Outstanding borrowings were Rs 2,78,780 crore at 30 September 2026. Non-convertible debentures, or NCDs, accounted for 45% of the borrowing base, banks for 38%, National Housing Bank, or NHB, for 9%, other sources for 5% and deposits for 3%; NCDs and banks together represented 83%.
Which LIC HFL funding sources had the lowest and highest costs?
Commercial paper had LIC HFL’s lowest disclosed weighted average cost, at 6.69% on 30 September 2026, followed by bank funding including NHB at 6.92%. Both were below the 7.29% total cost, while NCDs, the largest individual borrowing category at 45%, carried a 7.71% weighted average cost.
Tier II funding had a reported cost of 7.30%, deposits cost 7.35%, and pass-through certificates, or PTCs, cost 7.51%. The difference between commercial paper at 6.69% and NCDs at 7.71% was 102 bps.
The source-cost table combines bank funding and NHB at 6.92%, but the borrowing-mix chart lists banks at 38% and NHB at 9% separately. LIC HFL does not disclose a standalone NHB cost in the supplied presentation, so the contribution of NHB to the total 7.29% funding cost cannot be determined from this material.
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How did LIC HFL's disbursements and portfolio change?
LIC HFL’s total disbursements rose 13% to Rs 33,140 crore in H1 FY27 from Rs 29,429 crore in H1 FY26. Retail-loan disbursements increased 10% to Rs 31,704 crore, while project-finance disbursements increased 169% to Rs 1,436 crore from Rs 534 crore.
In Q2 FY27, total disbursements grew 11% to Rs 18,127 crore from Rs 16,313 crore in Q2 FY26. Retail disbursements rose 10% to Rs 17,563 crore, and project-finance disbursements increased 49% to Rs 564 crore.
The outstanding portfolio was Rs 3,26,173 crore in Q2 FY27, 5% above Rs 3,11,816 crore a year earlier. Retail loans were Rs 3,16,433 crore, up 4%, while project finance was Rs 9,740 crore, up 12%, leaving retail as the substantially larger reported portfolio segment.
What do LIC HFL's earnings and asset classifications show?
LIC HFL reported net interest income of Rs 4,163.38 crore in H1 FY27, 1% above Rs 4,102.08 crore in H1 FY26. Revenue from operations was broadly unchanged at Rs 14,236.25 crore versus Rs 14,243.18 crore, while finance cost declined 1% to Rs 9,972.20 crore from Rs 10,044.52 crore.
Net profit increased 10% to Rs 2,997.10 crore in H1 FY27 from Rs 2,713.79 crore, and profit before tax rose 12% to Rs 3,806.98 crore. The presentation recorded a Rs 256.80 crore reversal in impairment on financial instruments and net loss on derecognition, against a Rs 193.66 crore charge in H1 FY26.
Stage 1 exposure at default increased to 95.42% in September 2026 from 94.11% in September 2025, while Stage 2 declined to 2.53% from 3.38% and Stage 3 declined to 2.05% from 2.51%. Stage 3 expected credit loss provision fell to Rs 3,281.86 crore from Rs 4,156.49 crore, while the Stage 3 provision coverage ratio was 49%, compared with 53%.
Conclusion
LIC HFL’s H1 FY27 results show that lower borrowing costs did not offset the faster fall in lending yield. The 36-bps reduction in yield on advances exceeded the 13-bps decline in weighted average funding cost, narrowing the spread by 23 bps to 1.75%, while H1 NIM declined 8 bps to 2.57%.
The next reported margin movement will depend on how the 6.91% Q2 FY27 incremental cost of funds feeds into the Rs 2,78,780 crore borrowing base and how portfolio yield develops. LIC HFL provided no margin target or guidance in the presentation; subsequent yield, weighted average funding cost, disbursement mix and quarterly NIM are the disclosed measures to watch.