Detailed Narrative
Macroeconomic and Sectoral Outlook
Management noted a mixed macroeconomic environment, with softness in consumer demand indicators like UPI transaction volumes, passenger vehicle sales, and two-wheeler registrations. Urban wage growth remained subdued. However, rural India showed resilience due to a successful Rabi harvest and timely monsoon, boosting cash flows and consumption. Headline CPI inflation eased to a six-year low of 2.1% in June 2025, providing a stable backdrop. The affordable housing finance loan portfolio is projected to grow at a CAGR of 20-22% to ₹2.5 lakh crores by FY28.
Strong Operational and Financial Performance
India Shelter delivered robust Q1 FY26 results, with Assets Under Management (AUM) growing 34% year-on-year to ₹8,712 crores and disbursements increasing 24% year-on-year to ₹887 crores. Profit After Tax (PAT) surged 43% year-on-year and 10% quarter-on-quarter to ₹119 crores. Return on Equity (ROE) improved to 17.2%, and Return on Assets (ROA) was 6%, up 20 basis points quarter-on-quarter. The company expanded its geographic presence by adding 24 new branches, reaching a total of 290 branches.
Improved Profitability and Cost Management
The company successfully reduced its bucket cost of funds by 10 basis points quarter-on-quarter to 8.6%, with the marginal cost of funds at 8.5%, down 30 basis points year-on-year. This led to a 20 basis points improvement in lending margins, reaching 6.4%, consistently above the 6% guidance. Net Interest Margin (NIM) remained stable at 9% year-on-year. Operating expenses to AUM improved to 4.2%, down 20 basis points year-on-year, reflecting better cost ratios.
Asset Quality and Credit Cost Trends
Stage 3 assets stood at 1.2%, an increase of 10 basis points year-on-year, while net Stage 3 assets remained stable at 0.9%. The provision coverage ratio for Stage 3 assets was stable at 25%. Credit cost for the quarter was 0.5%, in line with the medium-term guidance of 40-50 basis points. Management acknowledged an increase in DPD 30-plus by 100 basis points, attributing it to seasonality and broader macroeconomic factors, but expects stabilization around 3.2-3.3% by FY26 end.
Technology and Operational Efficiency Initiatives
India Shelter continued to enhance its technological capabilities, implementing Aadhar-based instant e-KYC for faster onboarding and fraud prevention. They also deployed machine learning-based credit origination scorecards to analyze financial behavior, digital payments, and non-traditional data for improved risk assessment. These initiatives aim to automate key processes, enhance customer experience, and make credit decisions faster and fairer. Management targets a 10% annual improvement in employee productivity.
Borrowing and Asset Mix Strategy
The company's borrowing mix is 90% variable rate, with 35% linked to the repo rate and 65% to MCLR. They anticipate another 20 basis points reduction in the cost of funds by year-end. On the asset side, 15% of the portfolio is variable rate, 30% is semi-variable (fixed for initial three years), and 55% is completely fixed. The long-term aspiration is to have 65% of total assets linked to variable or semi-variable rates and 35% funded by fixed rate or equity within two years.
Geographic and Segmental Focus
The company maintains a strategic focus on Tier 2 and Tier 3 markets. While specific states like MP and Karnataka have shown some asset quality stress, management is actively working on resolution, with Karnataka showing signs of settling. Uttar Pradesh exhibits some of the lowest delinquencies across states, while Tamil Nadu has a slight but controlled uptick. The Home Loan (HL) to Loan Against Property (LAP) ratio is targeted to be maintained at 60:40, with LAP primarily secured by self-occupied residential properties with low LTVs of 45-47%.