Housing Finance Sector Trends in India (Q3 FY 2025)

The latest quarterly results of housing finance companies (HFCs) indicate a slower housing market and higher borrowing costs, squeezing profitability. After the post-pandemic boom, housing demand is normalizing, leading to slower loan growth. Additionally, higher funding costs—partly due to RBI’s policies—are making lending more expensive.

Key Takeaways from Major Players

1. Bajaj Housing Finance

• 26% growth in total loans (AUM crosses ₹1 lakh crore).
• Expanding developer finance, offering loans to builders to secure future home loan customers.
• Moving into near-prime & affordable housing, focusing on Tier 2 & Tier 3 cities.
• Challenges: Margins remain under pressure due to rising borrowing costs.

2. LIC Housing Finance

• Margins declined (NIM fell from 3% to 2.7%).
• Cleaning up bad loans, reducing NPAs from 4.26% to 2.75%.
• Pulling back from developer finance to reduce risk.
• Challenges: Higher cost of funds (7.7%) and slower loan growth due to legal delays in cities like Bangalore & Hyderabad.

3. Aavas Financiers

• Focused on affordable housing in smaller towns (80% of loans < ₹25 lakh).
• 20% growth in total loans (₹19,200 crore).
• Margins under pressure as older loans have lower interest rates.
• Low customer churn, meaning borrowers prefer staying with them.
• Challenges: Affordable housing comes with higher risks of defaults.

Overall Industry Outlook

• Slower home loan demand & expensive borrowing pose challenges.
• Companies are adopting different strategies: expansion, risk reduction, or affordability focus.
• If interest rates fall, margins could improve.
• Developer financing is a key trend to watch, as some firms expand while others exit due to risk.

The sector’s performance in the coming months will depend on interest rate movements, loan demand, and risk management strategies of each HFC.