Assets under management of India’s housing finance companies (HFCs) have crossed Rs 10 lakh crore for the first time and are expected to grow a further 15–17 per cent over the next two financial years, even as higher bond yields and geopolitical tensions weigh on funding costs, according to a report by Icra.
As of December 31, 2025, the AUM of HFCs stood at Rs 10.2 lakh crore, marking a 15 per cent year-on-year rise. The rating agency expects this momentum to continue through FY2026 and FY2027, supported by expansion into non-home loan segments to cushion margin pressures amid rising competition.
Icra said the broader on-book home loan portfolio of HFCs, non-banking financial companies and scheduled commercial banks rose 11 per cent year-on-year to Rs 42.2 lakh crore as of December-end 2025. Scheduled commercial banks led growth in the segment at around 11 per cent, followed by HFCs at about 9 per cent and NBFCs at 6 per cent during the first nine months of FY2026.
The report noted that policy rate reductions since February 2025 and their gradual transmission by banks helped lower funding costs for HFCs in 9M FY2026. However, elevated bond yields in recent quarters and macroeconomic uncertainties arising from the West Asia conflict could dampen funding conditions in FY2027, even though overall liquidity and access to off-book funding sources remain adequate.
On asset quality, Icra expects some uptick in non-performing assets, particularly among small and mid-sized HFCs, as their rapidly expanded loan books continue to season. Disruptions linked to the West Asia conflict also remain a monitorable risk for portfolio quality. Even so, credit costs are projected to stay range-bound at 0.2–0.4 per cent during FY2026–FY2027, compared with 0.2 per cent in 9M FY2026.
Profitability, as measured by return on average managed assets, is estimated to have remained stable at 2.1 per cent in 9M FY2026, broadly in line with FY2025. While net interest margins may face some compression due to competitive pressures and macroeconomic risks, operating efficiency is expected to support overall earnings resilience.
Icra added that the sector’s capitalisation profile remains adequate for anticipated growth, with only select entities likely to require capital raises depending on their expansion plans.