Detailed Narrative
Q1 FY26 Performance Overview
LIC Housing Finance reported a 'flattish' Q1 FY26, with total revenue from operations growing 7% YoY to INR7,233.13 crores and PAT increasing 4.6% YoY to INR1,359.92 crores. The outstanding loan portfolio expanded 7% YoY to INR3,09,587 crores as of June 30, 2025. Management noted that Q1 is typically a slow quarter for the company, impacted by internal personnel movements.
Net Interest Margin (NIM) and Cost of Funds
NIM for Q1 FY26 stood at 2.68%, a compression from 2.76% in Q1 FY25 and 2.86% in Q4 FY25. This was partly attributed to delayed rate cuts by the company compared to banks. However, the cost of funds improved, reducing by 26 basis points YoY to 7.50% as of June 30, 2025, with incremental cost of funds at 6.97% for Q1 FY26. Management expects NIMs to remain stable, offsetting yield compression with lower borrowing costs, targeting a range of 2.6% to 2.80%.
Asset Quality Trends
Stage 3 exposure (GNPA) improved YoY to 2.62% as of June 30, 2025, from 3.30% a year ago. However, it saw a QoQ increase from 2.47% in Q4 FY25, with an approximate INR500 crore increase in NPAs, primarily in the retail segment. Total provisions stood at INR5,051 crores, maintaining a provision coverage of 51%. Management attributed the Q1 softness to personnel movement and expects recovery, aiming to keep credit costs within 9-15 bps.
Disbursement Dynamics
Total disbursements for Q1 FY26 were INR13,116 crores, a slight increase from INR12,915 crores YoY. Individual Home Loan disbursements grew 2.88% to INR11,247 crores, but Project Loan disbursements significantly declined by 70.05% to INR156 crores. Management noted a gradual pick-up in disbursements, with July reaching INR5,500 crores, and expects monthly disbursements of INR6,000-6,500 crores from August onwards.
Competition and Rate Strategy
The company faces intense competition, particularly from PSU banks, leading to a 'rate war.' While RBI cut repo rates by 100 basis points, LIC HFL implemented a 25 basis point cut across its PLR, effective June/July for existing borrowers. They are offering existing customers the option to rewrite loans at 8.75% to retain them, emphasizing a strategy to prioritize margins over aggressive growth and not contemplating further cuts currently.
Project Finance Outlook
Despite the sharp decline in Q1 project loan disbursements, management reiterated its commitment to the segment. They are adopting a cautious approach, focusing on 'reputed and BBB-rated builders' due to past issues (54% NPA in this segment historically). They have sanctioned INR800 crores in Q1, with disbursements linked to construction stages, and aim for an affordable housing book of around INR1,000 crores for the year, expecting growth in subsequent quarters.