CHENNAI: Despite a deceleration in the growth of their largest business that home loans is, mortgage finance books of non-banks are set to grow 18-19% this fiscal and the next, in line with 18.5 percent growth seen last fiscal. This is despite sub-segments such as home loans, loans against property (LAP) and wholesale loans, will see varying growth rates, credit rating agency Crisil said on Wednesday in a report based on the largest 10 non-banks.
The growth of home loans, the largest segment with 59 percent of the assets under management, will see moderate growth at 12-13 percent this fiscal and the next down from 14 percent last fiscal, the report said, adding while LAP, which is the second largest asset class with 32 percent share, will continue to outpace home loans, clipping at 27-29 percent but down 32 percent last fiscal.
On the other hand, the wholesale portfolio, comprising developer finance and lease rental discounting, which saw a modest revival in fiscal 2025, should grow at a faster clip, supporting overall sector growth, the report added. With respect to home loans, long-term structural drivers such as low mortgage penetration and rising urbanisation remain intact. Affordability indicators, which influence demand, are also supportive, with disposable incomes continuing to outpace a rise in house prices amid lower interest rates.
So the problem has more to do with rising competition from banks and not lack of demand drivers, the report added. There are, however, two challenges for non-banks: first is the intense competition from banks, which continue to dominate the prime home loan segment. According to Subha Sri Narayanan, a director with Crisil, public sector banks have upped the ante and surpassed prime-focused housing finance companies last fiscal and in the first half of this fiscal. SBI alone controls as much as 28% of the home loan market.
Competition on pricing is evident from the strong growth in lower-interest rate home loans of banks—the share of the sub-9 percent interest rate portfolio increased to over 60 percent as of March 2025, from 45 percent last year. As a result, many large HFCs are facing increased customer churn through balance transfer cases, she added.
The second challenge is an expected moderation in residential real estate sales growth in value terms in the top seven cities, which could affect disbursement of loans availed of for funding new homes. However, it must be noted that the home loan portfolio of non-banks comprises a good mix of loans availed for new homes and for self-construction or resale properties—in fact, about half of the disbursements are towards the latter. The proportion of self-construction/resale properties in the AUM is even higher for affordable housing financiers.
Meanwhile, growth in LAP, which peaked in fiscal 2024 and remained strong last fiscal, will normalise but will still remain the fastest-growing mortgage segment NBFCs. According to Aesha Maru, an associate director of the credit rating agency, the growth trajectory across various sub-segments within LAP will be influenced by delinquency trends, which will vary by ticket size. LAP delinquencies are increasing, with the smaller ticket sub-segments seeing more.
On the wholesale front, this portfolio was on a downswing till fiscal 2024 but saw a reversal recently with players focusing on financing projects of high-quality developers. Growth here is expected to be healthy at 15-16 percent, up from 6 percent in fiscal 2025. The ability of non-banks to adapt their business models to the evolving competitive landscape, anchored in strong risk management, will be crucial to their growth prospects, she concluded.