LIC Housing Finance Ltd Management Discussions

Indian Economy

FY 2025-26 was a challenging year from a global economic perspective, shaped by shifting tariff regimes that reshaped global trade dynamics and geopolitical tensions that disrupted supply chains and the key energy transit route, the Strait of Hormuz. These developments heightened concerns around inflation, rising input costs, and financial stability. Another significant development during the year was the accelerated adoption of AI across industries, which drove substantial investments in technology infrastructure and digital capabilities.

Against this backdrop, India continued to demonstrate strong macroeconomic resilience and remained among the worlds fastest-growing major economies, with GDP growth rising to 7.7% in FY 2025-26 from 7.1% in FY 2024-25, reflecting the strength of domestic demand, public expenditure, and investment activity. Real Gross Value Added (GVA) increased to 294.91 lakh Crore from 273.36 lakh Crore in the previous year, registering a growth rate of 7.9%, higher than 7.3% in FY 2024-25.

Domestic demand remained the primary engine of growth during the year. Both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) recorded growth of over 7.5%, indicating sustained household spending and continued investment momentum. Strong public capital expenditure, improving private sector confidence, and favourable financing conditions supported overall economic activity.

On the supply side, manufacturing emerged as a key growth driver, expanding by 10.7% in FY 2025-26. The services sector continued to be the principal contributor to economic growth, with trade, repair, hotels, transport, communication, and broadcasting services growing by 11.0%, while financial services, real estate, professional services, and information technology activities expanded by 10.4%. The agriculture and allied sector recorded a moderate growth of 3.0% during the year.

Indias external sector remained resilient despite a challenging global trade environment. Total exports of merchandise and services rose to USD 860.09 billion in FY 2025-26, compared with USD 825.26 billion in the previous year, reflecting a growth of 4.22%. Merchandise exports increased marginally to USD 441.78 billion from USD 437.70 billion in FY 2024-25. India attracted USD 58.85 billion in foreign direct investment (FDI) inflows during the year, compared to USD 80.61 billion in FY 2024-25, reflecting a growth of 18%, underscoring continued investor confidence in the countrys long-term growth prospects. The current account deficit stood at USD 25.2 billion, equivalent to 0.6% of GDP broadly stable compared with the previous year.

Indias retail lending market remained resilient in FY 2025-26, with total retail loans outstanding reaching 170.2 lakh Crore as of March 2026, registering a growth of 16.6% YoY. Consumption loans stood at 118.6 lakh Crore, reflecting a growth of 15.3%, according to CRIF High Mark. The expansion was driven by broad-based growth across both secured and unsecured credit segments, increasing loan ticket sizes, and improving asset quality trends.

Growth remained broad-based across lending categories, led by gold loans, which expanded by 50.4% to 18.6 lakh Crore. Home loans continued to witness steady traction, with credit outstanding reaching 44.4 lakh Crore, up 9.4% YoY. Vehicle finance also remained resilient, with auto loans and two-wheeler loans recording portfolio growth of 13.9% and 15.1%, respectively.

Indias digital economy continued to deepen, led by the rapid adoption of the Unified Payments Interface (UPI). Annual transaction volumes increased from 2 Crore transactions in FY 2016-17 to over 24,162 Crore transactions in FY 2025-26, while transaction value expanded from 0.07 lakh Crore to approximately 314 lakh Crore over the same period. The scale and reach of UPI have significantly strengthened digital payments adoption and financial inclusion across the country.

Inflation dynamics were also favourable in this year, with headline CPI moderating sharply from 4.6% to around 2.0%, largely driven by sustained food deflation. On the external policy front, India made steady progress in strengthening trade linkages, including deeper engagement with key partners such as the UK and the US, alongside multiple free trade agreements that support export competitiveness and supply chain diversification.

The RBI adopted an accommodative monetary policy stance during the year, with cumulative repo rate cuts of 125 bps bringing the repo rate down to 5.25%, alongside sustained liquidity injections and regulatory easing. This was complemented by fiscal measures from the government, including reductions in income tax and GST rates, aimed at supporting consumption and aiding the economic recovery.

Outlook

Following a year marked by major structural reforms, particularly in labour laws and the GST framework, India steps into 2026 with renewed optimism and on a more confident growth path. A diversified domestic consumption base, sustained government capex growth, resilient services, and support to the manufacturing ecosystem are expected to support the realisation of a potential growth rate of around 6.8-7.2% in FY 2026-27, as outlined in the Economic Survey 2025-26.

Industry Overview

Real Estate and Housing Sector

The year 2025 (Jan-Dec 2025) has been a period of significant recalibration for the Indian real estate and housing sector, characterised by unprecedented events, including geopolitical conflicts, tariff tensions and sector-specific challenges such as layoffs in the IT industry. Despite navigating a landscape of headwinds, the sector has demonstrated a remarkable structural maturity.

Total Launches vs Sales (in lakh Units)*

The supply side has witnessed a calculated optimism during the year. Across the top 7 cities - National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Bengaluru, Pune, Hyderabad, Chennai and Kolkata - approximately 4.19 lakh new units were launched in FY 2025-26, a modest 2% YoY increase from 4.12 lakh units in FY 2024-25, according to The Indian Residential Real Estate Annual Report 2025 by ANAROCK. This measured growth reflects a deliberate effort to align supply with current absorption realities, moving away from the peak levels of 4.46 lakh units recorded in 2023.

The demand side has experienced a significant volume correction in 2025. Housing sales across the top 7 cities reached approximately 3.95 lakh units, marking a 14% decline from 4.59 lakh units in 2024, and a 17% moderation from the 2023 peak of 4.77 lakh units.

In 2025, reached approximately 3.95 lakh units, marking a 14% YoY decline from 2024s 4.59 lakh units. This represents the steepest annual contraction in recent years. The decline becomes more evident when compared to 2023s peak performance of 4.77 lakh units, representing a 17% drop from that high-water mark.

Ticket-Size Distribution of Residential Launches

Pan-India Budget Segmentation

Indias residential market has moved up to the value curve over the past five years. The mix of new launches between 2020 and 2025 shows a steady shift toward higher-value properties. In 2025, units priced above 2.5 Crore and 1.5 Crore - 2.5 Crore have collectively commanded a lions share of 42% of total launches, compared to their combined share of 9% in 2020. This upward trajectory shows a market recalibration where developers are increasingly targeting high-income demographics and investor-driven demand, reflecting a premiumisation trend that has accelerated over the last five years.

Conversely, mid-segment housing units priced at below 40 lakh and 40 lakh - 80 lakh have experienced a significant decline in their market dominance. The share of launches priced below 40 lakh has more than halved, plummeting from 30% in 2020 to just 14% in 2025. Similarly, the 40 lakh - 80 lakh category, which was the market mainstay with a 40% share in 2020, has seen its contribution drop to 20% by 2025. The decline of the lower budget tiers highlights the dual impact of rising input costs and a shift in buyer profiles, as the market moves away from volume-driven affordable housing toward value-driven premium developments.

The units priced between 80 lakh - 1.5 Crore segment has remained steady over the years, rising slightly from 21% in 2020 to 24% in 2025. This suggests sustained demand from upper middle-income households, even as the broader market gravitates toward premium housing.

Budget Segmentation City-wise

In 2025, new launches across the top 7 cities reveal a distinct trend of high-value supply in 3 of the 7 cities. The National Capital Region (NCR) leads with a notable 55% of new launches priced above 2.5 Crore, and a further 25% in the 1.5 Crore - 2.5 Crore price bracket. Hyderabad follows a similar pattern, as units above 1.5 Crore collectively comprise 65% of the citys total launches. In Bengaluru, the market remains heavily weighted toward the 1.5 Crore - 2.5 Crore bracket, which represents 45% of its new launches.

Key Emerging Growth Drivers

• Infrastructure & Connectivity-Led Growth

Connectivity-led infrastructure development, such as expressway networks, dedicated freight corridors and airport expansions, is now unlocking large-scale townships that were previously peripheral or inaccessible. Growth is increasingly being shaped by connectivity-led expansion rather than traditional city-centre dynamics.

Micro markets positioned near operational metro corridors and transit-oriented development (TOD) zones are now witnessing significant real estate activity, characterised by high demand and price appreciation. Simultaneously, logistics parks, data centres and warehousing clusters in emerging suburban belts are generating new employment hubs within, creating a new wave of residential demand.

• The Premium Shift in Consumer Behaviour

Homebuyers are increasingly opting for larger configurations, better amenities and future-ready living environments rather than focusing solely on traditional affordability. Wellness-oriented design, integrated townships and amenity-rich communities are becoming mainstream expectations rather than luxury add-ons.

Cross-border design collaborations and branded residences are elevating quality benchmarks in the

Conversely, cities such as Kolkata and Chennai remain focused on affordability and mid-market segments. Kolkata shows a balanced price distribution, with 26% of its supply below 40 lakh and 38% in the 40 lakh - 80 lakh range, indicating a strong presence in the affordable and mid-range segments. Pune and Chennai follow this trend, with 73% and 71% of their launches, respectively, in the 40 lakh - 1.5 Crore range, highlighting a focus on mid-market buyers. The Mumbai Metropolitan Region (MMR), distinct from these patterns, remains the most active market for launches below 40 lakh at 34%, but it also maintains a consistent 14% share in each of the three higher price brackets above 80 lakh. premium and luxury segments. Homebuyers are becoming more value-oriented rather than price-sensitive, prioritising quality and better lifestyle ecosystems over entry-level pricing.

• Structural Maturity & Urban Renewal

Indias residential landscape is entering a phase of structural maturity marked by disciplined capital allocation and urban reinvention. Redevelopment across land-constrained metropolitan cores is accelerating, supported by enhanced floor space index (FSI) norms that enable vertical expansion and modern reconstruction. This is not merely a replacement supply; it is value unlocking within established micro-markets.

At the same time, the industry is witnessing consolidation. Financially stronger, organised developers are acquiring stressed or stalled assets, reinforcing execution credibility and strengthening balance sheets. This ongoing ‘flight to quality is fostering a more stable, institutionally driven real estate ecosystem.

At the same time, the rise of Tier-2 and Tier-3 cities, supported by digital infrastructure and reverse migration trends, is sustaining housing demand beyond traditional metro boundaries. The residential story is becoming geographically diversified.

• Technology and Execution Efficiency:

Construction innovation is gaining momentum to sustain the economies of housing projects. The adoption of modular and prefabricated construction techniques is becoming commercially viable to combat labour shortages and drastically reduce project timelines while maintaining high quality.

Emerging technologies are being rapidly integrated into residential project planning and development. AI-led design tools and predictive analytics are improving cost management, minimising structural conflicts, and enhancing capital efficiency across the project lifecycle.

Source: ANAROCK Indian Residential Real Estate Annual Report 2025 (https:// websitemedia.anarock.com/media/Indian Residential Real Estate Sector Annual Report 2025 ce7aedb05f.pdf)

Housing Finance Sector

The housing finance sector in India plays a vital role in enabling millions to achieve home ownership and providing financial assistance to individuals and developers for the purchase, construction, renovation, or improvement of residential properties. The sector has witnessed substantial growth in recent years, driven by rising income levels, rapid urbanisation, supportive government initiatives, and evolving consumer preferences.

As of March 2026, the outstanding housing loan portfolio stood at 44.4 lakh Crore, registering a 9.4% YoY growth. The number of active housing loan accounts increased to 235.7 lakh, reflecting continued expansion in mortgage penetration across the country, according to CRIF HighMark.

	As of March 2025	As of March 2026	Growth (%)
Portfolio Outstanding ( lakh Crore)	40.6	44.4	9.4%
Active Loans (lakh)	229.9	235.7	2.5%

Source: CRIF HighMark

As of March 2025, HFCs accounted for 19% of the individual housing loan (IHL) market, while Public Sector Banks (PSBs) and Private Sector Banks (PVBs) held 44% and 36%, respectively, according to the NHB Annual Report 2024-25.

HFCs demonstrate a distinct positioning in the lower and mid-ticket housing segments. As of March 2025, approximately 45% of HFCs housing loan portfolios are concentrated in ticket sizes of up to 25 lakh, compared with 28% for PSBs and 23% for PVBs. In terms of outstanding IHL, PSBs reported 15,91,377 Crore, PVBs 12,97,730 Crore, and HFCs 6,72,170 Crore as of March 2025.

During FY 2024-25, the overall growth in individual housing loans by Primary Lending Institutions (PLIs) remained steady. Outstanding housing loans grew by 11.76% year-on- year, reaching 36,07,533 Crore as of March 2025. Disbursement growth, however, remained subdued at 0.23%, reflecting a moderation in incremental demand following the strong post-pandemic recovery phase.

Outstanding and Disbursement of IHL by PLIs (In Crore)

PLIs	Outstanding	Growth		Disbursement	Growth
	As on March 2024	As on March 2025	(%)	FY 2023-24	FY 2024-25	(%)
HFCs	5,96,247	6,72,170	12.73	1,83,239	1,92,586	5.10
PSBs	13,80,617	15,91,377	15.27	3,42,298	3,84,813	12.42
PVBs	12,10,871	12,97,730	7.17	3,39,635	2,89,659	-14.71
Others	40,200	46,257	15.07	9,871	10,002	1.33
Total	32,27,935	36,07,533	11.76	8,75,044	8,77,060	0.23

Government Initiatives

1. Pradhan Mantri Awas Yojana

The Government of Indias flagship housing programme, Pradhan Mantri Awas Yojana (PMAY), covering both Urban (PMAY-U) and Rural (PMAY-G) segments, continues to play a central role in expanding access to affordable housing and strengthening home ownership across the country.

Launched in 2015, PMAY-Urban (PMAY-U) has sanctioned around 1.18 Crore houses, of which approximately 96 lakh houses have been completed, as of Dec 2025. To continue progress, the Government introduced PMAY-U 2.0 in 2024 with a target to support 1 Crore additional urban households. The revised framework places greater emphasis on structural reforms, including linking scheme benefits with the notification of Affordable Housing Policies by State Governments. The Union Budget 2026-27 has increased the allocation to 18,625 Crore from 7,500 Crore in the previous year, indicating continued policy focus on urban housing.

PMAY-Gramin (PMAY-G), launched in 2016, aims to achieve the objective of Housing for All by 2029 by providing pucca houses with basic amenities to eligible rural households. Against a total target of 4.95 Crore houses, 4.14 Crore units have been allocated to States and Union Territories, of which 3.86 Crore have been sanctioned and 2.93 Crore completed as of February 2026. Budgetary support has been significantly enhanced, with allocation rising to 54,917 Crore in FY 2026-27 from 32,500 Crore in FY 2025-26.

Sources: (NITI Aayog) https://pmav-urban.gov.in/PHQM Comprehensive Framework to Promote Affordable Housing.pdf

https://www.pib.gov.in/PressReleasePage.

aspx?PRID=2227484&reg=3&lang=1

2. Credit Risk Guarantee Fund Trust for Low-Income Housing (CRGFTLIH)

The Government of India has restructured the Credit Risk Guarantee Fund Trust for Low-Income Housing (CRGFTLIH) to strengthen credit access for Economically Weaker Sections (EWS) and Low-Income Group (LIG) households. The scheme provides credit guarantees on housing loans extended by Scheduled Commercial Banks

and Housing Finance Companies, thereby improving creditworthiness and reducing lender risk.

Aligned with the objectives of PMAY-Urban 2.0, the scheme facilitates access to affordable housing finance for eligible beneficiaries, enabling the timely completion of homes and supporting broader housing inclusion goals.

Since its relaunch in 2025, the scheme has gained traction, with 6,205 housing loans guaranteed, aggregating to 614.76 Crore as of January 2026. In addition, the Department of Financial Services, in collaboration with banks, is developing customised home loan products for beneficiaries from the informal sector. States and Union Territories are also facilitating credit access through tripartite arrangements between beneficiaries, lenders, and implementing agencies, further strengthening last-mile delivery under PMAY-U 2.0.

Sources: https://www.pib.gov.in/PressReleasePage. aspx?PRID=2225505&reg=3&lang=1

3. SWAMIH Fund

The Special Window for Affordable and Mid-Income Housing (SWAMIH), launched in 2019, has emerged as a key policy intervention to address stalled residential projects through last-mile financing.

The Funds portfolio spans over 146 residential projects across 20 cities and 12 States, making it one of the largest residential stress-resolution platforms in the country. As of March 2026, over 58,596 homes have been completed, with the Fund expected to enable the delivery of more than 1 lakh homes, benefiting over 2.38 lakh homebuyers.

Building on the progress achieved, the Government has announced SWAMIH Fund 2, structured as a blended finance facility with participation from the Government, banks, and private investors. With a proposed corpus of 15,000 Crore, the fund aims to expedite the completion of an additional 1 lakh housing units, further strengthening supply-side recovery in the residential sector.

Source: https://www.pib.gov.in/PressNoteDetails. aspx?id=157795&NoteId=157795&ModuleId=3&reg=3&lang=2v

4. Infrastructure-led Growth and Budgetary Support

The Union Budget 2026-27 reinforces the Governments continued focus on infrastructure-led growth, creating a supportive macro environment for the housing sector. Infrastructure outlay has been increased to 12.2 lakh Crore for FY 2026-27 from 11.2 lakh Crore in FY 2025-26. The continued investment for enhancing transport networks and urban infrastructure is likely to unlock the housing sector, particularly beyond the traditional metro markets.

The proposed creation of City Economic Regions (CERs) across Tier-2 and Tier-3 cities, supported by investments of 5,000 Crore per region over five years, is likely to accelerate their emergence as regional economic hubs and drive incremental housing demand.

The proposed development of seven high-speed rail corridors, spanning approximately 4,000 km, is expected to enhance inter-city connectivity, promote urban expansion into peripheral areas, and stimulate residential demand across emerging micro-markets.

The proposed Infrastructure Risk Guarantee Fund and continued monetisation of public sector assets through

REIT structures are expected to improve private sector participation and capital flows, further strengthening the housing ecosystem.

Source: https://www.pib.gov.in/PressNoteDetails. aspx?NoteId=157846&ModuleId=3&reg=3&lang=2

Tax Incentives on Home Loans

An individual can claim a home loan tax exemption for the following principal repayments and interest payments made on a home loan:

• Up to 1.5 lakh u/s 80C for principal repayments

• 2 lakh worth of housing loan tax benefit u/s 24(b) of the Income Tax Act

To facilitate the efficient flow of credit, promote financial inclusion and promote financial stability, the National Financial Information Registry is to be set up to serve as the central repository of financial and ancillary information. A new legislative framework is to govern this credit for public infrastructure and will be designed in consultation with the RBI. The deduction from capital gains on investment in residential houses under sections 54 and 54F to be capped at 10 Crore for better targeting of tax concessions and exemptions.

Significant Appreciation & ROI

Residential real estate has historically delivered steady capital appreciation, enabling homeowners to build long-term wealth. Rising property values enhance equity, which can be leveraged for future financial needs such as education, business expansion, or retirement planning.

Income Generation Potential

Residential property can serve as a source of steady rental income, supporting cash flows and enabling diversification of income streams. This enhances the investment appeal of housing as an asset class.

Stability and Financial Security Owning a home provides stability and reduces exposure to rental volatility. It offers greater control over living conditions and long-term financial predictability, making it a preferred choice for individuals and families.

Lifestyle and Personalisation

Home ownership allows individuals to customise their living spaces according to their preferences and evolving needs. This flexibility contributes to improved quality of life and long-term satisfaction.

Tax Benefits

Home ownership offers tax advantages through deductions on principal repayment and interest on housing loans. These benefits reduce the effective cost of borrowing and improve overall financial efficiency.

higher construction material costs and intermittent supply chain disruptions, affecting project execution timelines and overall cost structures.

2. Affordability Pressure

Sustained increase in property prices, particularly in the premium and luxury segments, has widened the affordability gap for middle- and lower-income households. This may constrain demand in the affordable segment, which remains sensitive to price and interest rate movements.

3. Elevated Input Costs and Inventory Build-Up

Rising costs of key construction materials such as steel and cement, along with higher energy costs, continue to exert pressure on developer margins. In select markets and segments, supply additions have outpaced demand, leading to a build-up of unsold inventory and necessitating more calibrated project launches.

4. Regulatory Compliance and Clearances

Complex land acquisition processes and multi-layered regulatory approvals continue to pose execution challenges. Delays in project clearances not only extend development timelines but also increase holding costs, affecting project viability, particularly in the affordable housing segment.

Affordable Housing and Affordable Housing Finance

Indias affordable housing finance segment is entering a structurally favourable growth phase, supported by low mortgage penetration, improving income formalisation, and sustained policy support. Structural drivers, including urbanisation, rising income levels, financial formalisation, and continued government support through schemes such as Pradhan Mantri Awas Yojana (PMAY) are expected to underpin housing demand. Assets under management (AUM) of affordable housing finance companies (AHFCs) stood at approximately 17 lakh Crore as of September 2025, accounting for around 15% of the total HFC loan book, according to a report by ICRA.

Despite sustained policy support, a significant demand-supply gap persists in Indias affordable housing segment, particularly in urban centres. As of June 2025, the urban housing shortage is estimated at 9.4 million units, underscoring the structural deficit amid accelerating urbanisation, according to the India Affordable Housing Report 2025 by Knight Frank.

Looking ahead, India is expected to require an additional 22.2 million housing units between 2025 and 2030, with nearly 79% of this demand (17.5 million units) concentrated in the Economically Weaker Sections (EWS) and Low-Income Group (LIG) segments. Including the existing shortfall, the cumulative housing demand across EWS, LIG, and MIG categories is projected to reach approximately 30 million units by 2030. This structural demand gap presents a significant opportunity for affordable housing finance institutions to

deepen credit penetration, support first-time homebuyers, and play a critical role in expanding access to housing across underserved segments.

Housing Demand across All Income Groups by 2030

Growth Factors

Urbanisation - Structural Demand Driver

Urbanisation continues to act as a structural anchor for demand in Indias affordable housing segment. As of 2025, nearly 37% of Indias population resides in urban areas, which is projected to increase to around 43% by 2035, according to UNs World Urbanisation Prospects 2025. This urban concentration has supported sustained expansion in manufacturing, services and technology sectors and is expected to drive incremental demand for urban residential housing. As employment and income opportunities continue to concentrate in urban clusters and peripheral city regions, housing formation in these areas is likely to remain structurally supported.

Urban Population as % of Total Population

Source: World Urbanization Prospects 2025

Government Policy

Government policy has played a quantifiable role in supporting affordable housing demand and credit formation. The Pradhan Mantri Awas Yojana (PMAY) has been central to this effort, with a cumulative affordable housing shortage estimated at 31.2 million units by FY 2029-30, translating into a market size of approximately 67.2 trillion and an estimated financing opportunity of approximately 44-45 trillion, assuming ~77% loan dependency, according to the India Affordable Housing Report 2025 by Knight Frank.

The Credit Linked Subsidy Scheme (CLSS) under PMAY-Urban has been instrumental in improving affordability and expanding access to formal housing finance. Interest subsidies of up to 0.3 million per beneficiary in the 0.6-1.5 million loan bracket have enabled approximately 3.0 million EWS/ LIG and 1.3 million MIG households to access formal credit, supporting cumulative disbursements of around 2.1 trillion.

Budgetary allocations under PMAY-Urban have remained substantial over recent years, peaking in FY 2024-25 before moderating under PMAY 2.0. This continued fiscal support underscores the Governments sustained focus on affordable housing as a key component of capital formation and inclusive growth.

PMAY-U Budget Allocations ( Crore)

Source: Budget, IDBI Capital Research

HFCs Core Strengths

Housing Finance Companies (HFCs) have built a distinct space within the financial sector by focusing exclusively on housing finance and understanding the nuances of this segment. Their role goes beyond lending, as they enable access to home ownership for a wide spectrum of borrowers, including those who may not always fit into standard banking frameworks.

One of the key strengths of HFCs is their ability to work with diverse income profiles. Whether it is salaried individuals, self-employed borrowers or customers from the informal sector, HFCs have developed practical approaches to assess repayment capacity and structure loans accordingly. This flexibility allows them to serve segments that are often underserved by traditional lenders.

Their operating model is also relatively agile. With streamlined processes and decentralised decision-making, HFCs are able to respond faster to customer requirements, which is important in a time-sensitive market such as housing. This improves the overall borrowing experience and supports quicker conversion from application to disbursement.

Another important aspect is their strong presence in regional and semi-urban markets. Over time, HFCs have developed a deep understanding of local demand patterns, property dynamics and customer behaviour. This familiarity helps in

better risk assessment and in designing products that are aligned with local affordability levels and preferences.

HFCs also play a meaningful role in expanding access to housing finance. By catering to low- and middle-income segments, they support broader financial inclusion while contributing to steady demand in the housing market. Their ability to combine local insight with practical lending approaches continues to strengthen their relevance within the overall housing finance ecosystem.

Company Overview Segment-wise Reporting

The segments have been identified in accordance with the Accounting Standard for segment reporting, taking into account the Companys organisational structure as well as the distinct risks and returns associated with each segment. LIC Housing Finance Ltd. (hereafter referred to as "the Company" or "LICHFL") operates primarily within the Housing Finance industry, which constitutes its principal source of revenue.

Risks and Concerns

The Company has embedded risk management as a core element of its operating philosophy, supported by a well-defined framework covering risk identification, assessment, monitoring, and governance. This framework is anchored by a clearly defined risk appetite, supported by functional policies and key risk indicators (KRIs) that guide decision-making within acceptable risk thresholds. The Companys Board of Directors has entrusted the Risk Management Committee (RMC) to ensure that risk practices remain aligned with the Companys strategic priorities and evolving business environment.

The Company adopts a disciplined and forward-looking approach to risk management, focused on early identification of risks, effective mitigation and continuous monitoring to strengthen resilience. Its position as a leading housing finance company (HFC) is supported by a robust and evolving risk management framework.

Given the nature of its business, the Company is exposed to key risks including credit risk, interest rate and market risk, liquidity risk, and operational risk. To manage these exposures, it has deployed a range of analytical and monitoring tools, including time-bucketed liquidity statements, duration gap analysis, and foreign exchange exposure assessments. These tools enable timely evaluation and management of risks arising from liquidity mismatches, interest rate movements, and currency fluctuations.

The Company continues to strengthen its asset-liability management (ALM) framework to effectively manage balance sheet risks. Through prudent ALM practices and active monitoring, it seeks to mitigate the impact of volatility in interest rates, liquidity conditions, and foreign exchange movements, thereby safeguarding its Net Interest Income (NII) and overall financial stability.

Significant Risks and Mitigation Strategies Credit Risk

Credit risk arises from the possibility of a borrower failing to meet repayment obligations, including principal and interest, which may result in asset quality deterioration. In line with regulatory norms, loans are classified as Non-Performing Assets (NPAs) if payments remain overdue beyond 90 days.

The Company follows a structured credit appraisal framework that evaluates borrower creditworthiness through a combination of quantitative and qualitative parameters. Loan disbursements are aligned with defined milestones and repaid through Equated Monthly Instalments (EMIs). The Company also leverages both dynamic and static portfolio analysis to identify emerging risk trends and initiate timely interventions. A comprehensive Standard Operating Procedure (SOP), covering credit assessment, legal and technical due diligence, valuation, and documentation, ensures consistency and rigour in underwriting practices and is periodically updated to reflect evolving requirements.

Market Risk

Market risk refers to the potential impact of changes in interest rates, credit spreads, and other market variables on the Companys financial position. Key exposures arise from floating-rate loan assets, market-linked borrowings, and financial instruments such as Non-Convertible Debentures and foreign currency borrowings.

• Interest Rate Risk: Interest rate risk arises from potential fluctuations in the Companys net interest income and the valuation of its assets and liabilities due to changes in interest rates, whether driven by market dynamics or regulatory actions. An upward movement in rates can increase the cost of funds, while a downward shift may impact asset yields, particularly in the presence of repricing mismatches. Given the inherent nature of lending operations, such exposures require continuous oversight. The Company manages this risk through active monitoring of asset and liability profiles, supported by periodic reviews by the Asset Liability Committee (ALCO), which evaluates interest rate trends and guides timely adjustments to maintain balance sheet stability.

• Liquidity Risk: Liquidity risk relates to the Companys ability to meet its financial obligations as they fall due, including funding requirements, regulatory commitments, and operational needs. For a housing finance company, maintaining adequate liquidity is critical to ensuring business continuity and supporting disbursement activity. External factors such as an increase in the Cash Reserve Ratio (CRR), heightened government borrowing, or advance tax payments can also impact the Companys liquidity position. Conversely, holding excessive liquidity can negatively affect business efficiency. Drawing on years of market experience, the Company carefully manages its cash flow, assets and liabilities. The management establishes policies to

ensure adequate liquidity for immediate requirements. The Companys borrowing strategy is structured to remain flexible amid shifting liquidity conditions and business requirements, leveraging a diversified funding base to balance short- and long-term debt while effectively managing liquidity risks.

Operational Risk

Operational risk represents the potential for loss arising from deficiencies in internal processes, systems, human resources, or external events. Such risks may result in financial losses, business disruptions, or reputational impact, thereby affecting the Companys overall performance and growth trajectory.

The Company mitigates these risks through a robust internal control framework, supported by continuous monitoring, process standardisation, and periodic reviews to ensure operational efficiency and resilience.

• Compliance Risk / Regulatory Risk: The Company operates within a highly regulated environment, subject to oversight from multiple authorities and evolving regulatory requirements. Non-compliance with applicable laws and regulations may adversely impact business continuity and financial performance.

The regulatory framework governing the Company includes oversight by the Reserve Bank of India (RBI) as the principal regulator, with supervisory functions vested in the National Housing Bank (NHB). As a listed entity, the Company is also subject to regulations prescribed by the Securities and Exchange Board of India (SEBI), along with compliance requirements under the Companies Act and oversight by the Registrar of Companies (RoC), with its equity shares listed on the BSE and NSE.

To address these requirements, the Company has established a comprehensive compliance architecture. The Chief Compliance Officer oversees regulatory compliance across key jurisdictions, including RBI, NHB, and FIU-IND regulations, while the Company Secretary & Compliance Officer ensures adherence to corporate and capital market regulations. These functions are supported by dedicated teams that undertake continuous monitoring and periodic assessments to ensure timely compliance.

Further strengthening its compliance capabilities, the Company implemented an automated compliance management system in April 2025, enabling real-time tracking, reporting, and escalation of regulatory obligations, thereby enhancing governance and reducing compliance risk.

• Legal Risk: Legal risk arises from potential deficiencies in legal due diligence, documentation, or title verification, particularly in property-backed lending. Such risks may lead to litigation, financial exposure, or reputational impact.

The Company mitigates legal risk through stringent due diligence processes, including detailed title verification, documentation review, and adherence to defined legal protocols. Dedicated legal and technical teams oversee these processes, supported by standardised procedures and strong customer service practices, aimed at minimising disputes and ensuring transactional integrity.

Strategic Risk

Strategic risk refers to the potential impact on the Companys earnings and capital arising from sub-optimal business decisions, execution gaps, or an inability to adapt to evolving industry dynamics. The housing finance sector, characterised by strong growth potential and increasing competition, presents ongoing challenges to market share and profitability. The entry of new players, supported by favourable macroeconomic factors such as sustained economic growth, rapid urbanisation, policy support, rising credit penetration, and changing demographic patterns, has intensified competitive pressures within the sector.

In this dynamic environment, the Company has built a strong industry reputation, supported by a robust track record in Asset-Liability Management (ALM) and declining non-performing assets (NPA). To mitigate competitive pressures, LICHFL emphasises customer-centricity, leverages advanced infrastructure, including robust Information Technology (IT) systems and implements effective marketing strategies. The Company also capitalises on its established market position and agile cross-functional teams to maintain a leadership edge by offering high-quality products, competitive pricing and exceptional customer service.

Asset Liability Management

The Company follows the regulatory framework prescribed under ‘The Asset-Liability Management System for Housing Finance Companies issued by the National Housing Bank (NHB). Its ALM policy, approved by the Board, defines prudential gap limits, risk tolerance levels, and a structured reporting mechanism to effectively manage balance sheet risks.

The policy is periodically reviewed to align with evolving regulatory requirements and changes in the macroeconomic environment. Oversight of the ALM function is undertaken by the Asset Liability Committee (ALCO), which regularly reviews key ALM metrics and provides updates to the Board, ensuring informed decision-making and effective risk management.

Internal Control Systems and their Adequacy

Internal controls play a vital role in promptly identifying and addressing operational irregularities while ensuring a consistent and accurate representation of the organisations overall performance. An effective internal controls framework ensures that transactions are properly authorised, accurately recorded, and fairly reported, while safeguarding assets against unauthorised use or disposal. LICHFL has established an internal control framework tailored to its scale and operational complexity. The Company adheres to well-defined

policies, procedures, systems, and processes to ensure the accuracy and integrity of financial data, safeguard assets, prevention of fraud and errors, maintain complete and reliable accounting records, facilitate the timely preparation of financial information and ensure compliance with all applicable laws, regulations, and internal policies. Regular internal audits and inspections are conducted to assess the effectiveness of internal controls and verify adherence to policies and procedures. The management reviews audit findings and implements appropriate corrective actions and continuously strengthens the internal control environment. The summaries of the internal audit reports are presented to the Audit Committee of the Board, which reviews the observations and provides guidance to ensure continuous improvement in the Companys governance and control processes.

Financial Performance with Respect to Operational Performance Financial/Fund Management

LICHFL adopts a prudent approach to fund management, considering ALM gaps, interest rate movements, and prevailing market conditions while shaping its borrowing strategy. The Company maintains strong credit ratings from CRISIL, CARE, and ICRA across its borrowings, including bank loans, non-convertible debentures, commercial paper, and public deposits, enabling access to funds at competitive rates. It periodically reviews and adjusts its prime lending rate to ensure appropriate asset pricing. In addition, the Company closely monitors its cash position and deploys surplus funds in fixed deposits and overnight or liquid mutual fund schemes, in line with Board-approved policies, to optimise liquidity and minimise idle cash costs.

Outstanding Borrowing - 2,77,423 Crore

For FY 2025-26, Incremental Cost of funds was 6.94%

Statement of Compliance

The Standalone Financial Statements of the Company have been prepared on a historical cost basis, except for certain financial instruments measured at fair value. These statements comprise the Balance Sheet as at March 31, 2026, the Statement of Profit and Loss, the Statement of Cash Flows, and the Statement of Changes in Equity for the year ended on that date, along with the relevant accounting policies and explanatory notes (collectively referred to as the “Standalone Financial Statements” or “Financial Statements”).

Fair value represents the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where market prices are not directly observable, fair value is determined using appropriate valuation techniques, taking into account the characteristics of the asset or liability.

Additionally, for financial reporting, fair value measurements are categorised into Level 1, Level 2, or Level 3 based on the degree of observability and the overall significance of the inputs used.

The categories are defined as follows:

• Level 1 inputs consist of unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access on the measurement date;

• Level 2 inputs include observable inputs other than the Level 1 quoted prices, which may be either directly or indirectly related to the asset or liability;

• Level 3 inputs are unobservable inputs used for the asset or liability.

The financial statements are presented exclusively in Indian Rupees (), and unless otherwise noted, all amounts are rounded to the nearest Crore.

Performance/Operation Highlights

Total disbursements during FY 2025-26 comprised four key segments: Individual Housing Loans (IHL), Non-Housing Individual (NHI) loans, Non-Housing Corporate (NHC) loans, and Project Finance (PF). Total disbursements grew by 4% to 66,544 Crore from 64,022 Crore in the previous year, driven by a 6% increase in Individual Housing Loan disbursements to 54,503 Crore and a 20% rise in Non-Housing Individual loans to 9,636 Crore. Non-Housing Commercial loan disbursements declined by 23% to 441 Crore, while Project Finance disbursements stood at 1,964 Crore, compared with 3,776 Crore in the previous year.

The total outstanding loan portfolio increased by 4% year-on- year to 3.21 lakh Crore, compared to 3.08 lakh Crore in the previous year. Growth was primarily driven by the Retail loan portfolio, which expanded to 3,11,517 Crore from 2,98,519 Crore, reflecting sustained momentum in both housing and non-housing individual lending. The Project Finance portfolio remained largely stable at 9,190 Crore, as against 9,213 Crore in the previous year.

Revenue from operations increased by 3% to 28,764 Crore in FY 2025-26, from 28,037 Crore in FY 2024-25. Net profit after tax rose by 3% to 5,595 Crore, compared with 5,429 Crore in the previous year, reflecting sustained earnings growth. Net Interest Income (NII) grew by 4% to 8,425 Crore from 8,126 Crore in FY 2024-25. Net Interest Margin (NIM) moderated marginally to 2.68% from 2.73%. Meanwhile, tax expense increased to 1,485 Crore from 1,427 Crore in the prior year. The Board recommended a 500% dividend, equivalent to 10 per equity share, maintaining the payout at the same level as the previous year.

During the year, both the outstanding loan portfolio and disbursement volumes recorded steady growth, while asset quality remained stable. The Company also undertook initiatives such as optimisation of its marketing office network and system integrations to enhance operational efficiency.

Percentage Share of Outstanding Loans (%)

Segment	FY 2024-25	FY 2025-26
Individual Housing Loan	85.00%	84.47%
Non-Housing Individual	10.35%	11.34%
Non-Housing Corporate	1.66%	1.33%
Project Finance	2.99%	2.86%

Impairment Assessment

The Company applies the Ind AS 109 general approach for ECL impairment. The assessment considers reasonable and supportable information, including historical experience, current conditions, and forward-looking factors.

The Company classifies a financial instrument as defaulted when the borrower is more than 90 days past due on contractual payments. Once defaulted, such instruments are designated as credit impaired for the purpose of Expected Credit Loss (ECL) calculations. The company categorises loan assets into stages based on the Days Past Due status as the key quantitative indicator, together with other approved behavioural triggers for determining significant increase in credit risk and credit impairment.

• Stage 1: Assets with no significant increase in credit risk since origination and are not credit impaired. For assets less than 30 days past due, the Company recognises 12-month Expected Credit Losses using a one-year probability of default.

• Stage 2: Assets with a significant increase in credit risk since origination but not credit impaired. For assets with 31-90 days past due, the Company recognises lifetime Expected Credit Losses.

• Stage 3: Assets classified as credit-impaired, including those more than 90 days past due or with other objective evidence of impairment. In line with Ind AS 109 and the Companys ECL methodology, lifetime Expected Credit Losses (ECL) are recognised based on collective and individual assessments.

Recovery actions are undertaken for Stage 3 Assets in accordance with applicable legal frameworks, including the SARFAESI Act. Legislation such as the SARFAESI Act provides the Company with access to one of the most effective mechanisms for the recovery of non-performing assets (NPAs) within its category. While identifying significant increases in credit risk prior to a loan becoming overdue can be challenging

for certain financial instruments, individual housing loans benefit from a substantial security margin, which helps mitigate associated risks. The Company undertakes a collective assessment of credit risk for these loans by analysing data that signals significant credit deterioration across similar categories of financial instruments.

ECL Methodology and Estimation

Based on historical experience, the Company estimates the probability of default (PD) by tracking the migration of accounts across delinquency stages over time. Accounts typically progress sequentially from Regular to 30 days past due, 60 days past due, and subsequent delinquency buckets before reaching Default; they do not move directly from Regular to Default. At advanced stages of delinquency, foreclosure proceedings may be initiated and collateral realised to recover outstanding dues.

a. Probability of Default -

Probability of Default (PD) represents the likelihood that a loan will default over a specified time horizon based on the Companys historical credit experience and ECL methodology. A 12-month PD reflects the probability of such migration over the next 12 months, while lifetime PD captures the probability of default over the remaining contractual life of the loan. These estimates are used in measuring expected credit losses under the impairment requirements of Ind AS 109.

b. Exposure at default

Exposure at Default (EAD) represents the expected outstanding exposure at the time of default and serves as a key input for ECL measurement. The Company estimates EAD based on the contractual repayment profile of the loan, adjusted for expected behavioural cash flows and the anticipated outstanding balance over the assets expected life, in accordance with its approved ECL methodology.

c. Loss given default

Loss Given Default (LGD) represents the proportion of an exposure that the Company expects to lose upon default, after considering recoveries from collateral, repayments, and other recovery actions. LGD is estimated using historical recovery experience by comparing the present value of expected post-default recoveries with the Exposure at Default (EAD), in accordance with the Companys approved ECL methodology.

The impairment loss allowance decreased to 4,569 Crore in FY 2025-26 from 4,899 Crore in the previous year, indicating an improvement in the overall credit risk profile of the portfolio.

Credit Quality Analysis - Classification on the basis of risk pattern (Collective and Individual Basis)

Parameter	Stage 1		Stage 2		Stage 3		Total
	Outstanding Balance	Impairment Loss	Outstanding Balance	Impairment Loss	Outstanding Balance	Impairment Loss	Outstanding Balance	Impairment Loss
As at March 31, 2026	3,04,905.39	641.36	8,898.74	449.69	6,902.79	3,462.41	3,20,706.92	4,553.46
As at March 31, 2025	2,89,597.11	583.33	10,536.19	421.74	7,598.35	3,893.93	3,07,731.65	4,899.00
As at March 31, 2024	2,65,401.77	625.46	11,959.22	768.35	9,483.39	4,876.26	2,86,844.39	6,270.06

 

				PD
Lending Vertical	Stage 1	Stage 2 :	Stage 3	EAD	LGD
Home Loans	Historical data is utilised to calculate the probability of default (PD), while forecasted PD is derived using a multivariate regression methodology.	100%	100%	Exposure at Default (EAD) represents the net present value of the contractual cash flows, discounted using the effective interest rate and corresponds to the principal outstanding at the time of exposure. Undrawn loan commitments are also included as part of the EAD calculation.	Loss Given Default (LGD) is calculated as (1 minus the Recovery Rate). The Recovery Rate is determined by dividing the present value of the collateral by the Exposure at Default (EAD). The collateral value for each loan is assessed individually.
Loan Against Property
Lease Rental Discounting
Developer Loans
Other Loans

Individual Housing Loans

During FY 2025-26, the main thrust continued on individual housing loans. The Company has sanctioned 1,71,902 Individual Housing Loans (IHL) amounting to 55,666 Crore and disbursed 1,73,131 loans aggregating to 54,503 Crore during FY 2025-26, showing an increase from 51,614 Crore in the same period of the previous year. IHL constitute 81.91% of the total disbursements for the FY 2025-26.

The gross IHL portfolio grew by 3.57% from 2,61,562 Crore as on March 31, 2025 to 2,70,893 Crore as on March 31, 2026.

Non-Housing Individual Loans

The company has sanctioned 31,319 Non-Housing Individual Loan (NHI) amounting to 9,848 Crore and disbursed 31,092 loans amounting to 9,636 Crore during the FY 2025-26, an increase from 8060 Crore in the same period of the previous year. NHI constitute 14.48% of the total disbursement for the FY 2025-26.

The gross NHI portfolio grew by 14.19% from 31,854 Crore as on March 31, 2025 to 36,364 Crore as on March 31, 2026.

Non-Housing Commercial Loans

The company has sanctioned 73 Non-Housing Corporate Loan (NHC) amounting to 431 Crore and disbursed 68 loans amounting to 441 Crore during the FY 2025-26, a slight decline from 572 Crore in FY 2024-25. NHC constitute 0.66% of the total disbursement for the FY 2025-26.

The gross NHC portfolio decreased by 16.52% from 5,103 Crore as on March 31, 2025 to 4,260 Crore as on March 31, 2026.

Project Loans

The Project Finance business maintained a healthy yield profile, with the yield on disbursements improving to 10.86% during FY 2025-26 as against 10.38 in FY 2024-25.

The segment generated an interest income of 782 Crore during the year, registering a growth of 8.76% over the previous financial year.

Marketing

LICHFL has reinforced its position as a market leader with one of the largest marketing networks in India. In FY 2025-26, the Company introduced a Straight Through Process (STP) for loan processing, resulting in a reduction in turnaround time (TAT), improved operational efficiency, and a seamless customer experience. The Company successfully launched a pilot implementation of e-documentation (e-Stamping and e-Signing) through the Legality platform, marking a significant step towards the digital transformation of the loan documentation process. The initiative is aimed at enhancing operational efficiency while providing customers with a faster, seamless, and more convenient documentation experience.

Business sourced through the Lead Management platform registered a robust growth of 83.47%, increasing from 835 Crore in FY 2024-25 to 1,532 Crore in FY 2025-26. This alternate sourcing channel contributed 2.36% to the Companys overall business during the year, reflecting its continued emphasis on digital sourcing initiatives, customer acquisition, and business expansion. As of March 31, 2026, LICHFLs network comprises 10 Regional Offices, 303 Marketing Offices, 23 Back Offices, 39 Cluster Offices. The Company also maintains an international presence through its representative office in Dubai. Focused on expanding its reach and improving service delivery, LICHFL continues to strengthen its distribution network through a dedicated team of Marketing Intermediaries. Additionally, the Company actively promoted its products across India through various media platforms, enhancing its visibility and customer engagement.

Recovery Management

As of March 31, 2026, LICHFLs asset quality strengthened further, with Gross Non-Performing Assets (GNPA) declining to 6,903 Crore, representing 2.15% of the loan portfolio, compared to 7,598 Crore (2.47%) as of March 31, 2025. Net Non-Performing Assets (NNPA) also improved, reducing to 3,440 Crore, or 1.08% of the loan portfolio, from 3,704 Crore (1.22%) in the previous year.

In accordance with Ind AS 109, the Companys Expected Credit Loss (ECL) provision stood at 4,569 Crore as of March 31, 2026, compared to 4,899 Crore a year earlier, reflecting the improved credit quality of the portfolio. Stage 3 Exposure at Default (EAD) similarly declined to 2.15% from 2.47% year-on-year, underscoring the Companys disciplined underwriting standards, effective risk management practices, and continued focus on maintaining a high-quality loan book.

During FY 2025-26, the Company continued to strengthen its recovery framework through established channels such as legal action, settlements, and restructuring initiatives. In addition, the Company explored alternative resolution strategies, including the sale of stressed assets to Asset Reconstruction Companies (ARCs), in accordance with the regulatory framework prescribed by the Reserve Bank of India (RBI). As part of this initiative, the Company successfully completed the sale of one loan asset to an ARC during the year, marking a significant milestone in diversifying its recovery mechanisms and enhancing the efficiency of stressed asset resolution. This strategic step is expected to support faster recovery timelines and further strengthen overall asset quality management.

Human Capital and Resource Management

LIC Housing Finance Limited (LICHFL) recognises its human capital as a critical driver of sustained growth and long-term success. The Human Resources (HR) department plays a vital role in aligning employee objectives with the organisations goals, ensuring seamless operations and efficient resource utilisation.

At LICHFL, people remain central to execution and growth. The Companys approach to human capital is anchored in building capability, driving accountability and creating an environment that supports consistent performance.

LICHFL is committed to fostering an inclusive, safe, and performance-driven workplace that supports employee well-being and professional development. The Company has instituted a range of structured initiatives, including:

• Structured performance appraisal systems and incentive scheme

• Talent management programs

• Digital and in person wellness sessions

• Training sessions facilitated by internal and external subject matter experts

These efforts contribute to building a motivated workforce, aiding retention, and sustaining a high-performance culture.

The Company also undertakes periodic reviews of its HR policies and practices to ensure alignment with evolving business requirements and industry benchmarks.

As of March 31, 2026, the Company had a total staff strength of 2,399 with employees at various officer and non-officer cadres. Key productivity metrics include:

• Loan assets per employee: 133.70 Crore

• Net profit per employee: 2.33 Crore

Disclaimer

This report contains “forward-looking statements” within the meaning of relevant laws, rules and regulations. These statements describe the Companys goals, plans, estimates and expectations. The Company disclaims all liability if actual results differ considerably from those projected due to changes in internal or external causes. These statements are based on various assumptions about anticipated future events.