HFCs emerge stronger after FY26 stress, asset quality recovers sharply; sector better placed for FY27: Report
New Delhi, June 11
Housing finance companies have emerged stronger after navigating multiple challenges during FY26, with asset quality improving sharply, loan growth picking up, and profitability remaining resilient, according to a sector review report by Equirus Securities.
The brokerage said the housing finance sector witnessed a broad-based recovery in the fourth quarter of FY26, supported by better collections, lower credit costs and healthy disbursement growth.
"For HFCs, 4QFY26 was marked by (1) sharp asset quality recovery, (2) healthy disbursement and AUM growth, (3) range-bound spreads/NIMs, (4) rapid branch expansion, (5) lower credit costs, and (6) strong profitability," the report said.
According to the report, the sector had faced pressure during the first half of FY26 due to US tariff-related disruptions in sectors such as gems and jewellery, leather, shrimp and textiles, along with issues such as Karnataka's E-khata implementation, relationship manager attrition and weakness in rural MSME and microfinance segments.
However, lenders tightened underwriting standards early and began seeing improvement in the second half of the year.
"AQ [Asset Quality] recovers sharply; Apr-May trends hold," the report noted, adding that "green shoots" were visible in the third quarter before a "sharp 4QFY26 recovery."
Equirus said channel checks suggest repayment behaviour has remained healthy despite concerns around the broader economic environment.
"Channel checks indicate healthy collections and delinquency trends, with momentum stronger than 1QFY26 despite higher rejection rates in the salaried segment," the report said.
The brokerage expects some increase in delinquencies due to difficult macro conditions but believes the impact on profitability will remain limited.
"Despite a challenging macro, tighter underwriting and improving RM attrition should keep profitability resilient," it said.
The report also highlighted a strong rebound in loan disbursements during the quarter. Across 10 listed housing finance companies, disbursements grew 19.5 per cent year-on-year and 23 per cent quarter-on-quarter in 4QFY26.
"Disbursements rebounded in 4QFY26 (+19.5% yoy/+23% qoq)," the report said.
Affordable housing financiers continued to outperform larger peers. Equirus noted that affordable housing financiers grew around 21 per cent year-on-year, compared with 9.2 per cent and 11.6 per cent growth for large and mid-ticket housing finance companies, respectively.
The report added that non-housing loan segments such as loan against property (LAP) and MSME lending played a key role in driving growth during the second half of FY26.
Looking ahead, Equirus believes the sector is better positioned to handle challenges than the market currently assumes.
"Following the recent de-rating, we believe HFCs offer an attractive entry opportunity," the report said.
"As geo-specific issues ease, underwriting remains tight and RM attrition trends improve, the sector appears well placed to navigate a challenging backdrop," it added.
The brokerage said more housing finance companies are now moving towards annual assets-under-management growth of over 20 per cent and return on equity of around 15 per cent, signalling improving fundamentals heading into FY27.
— ANI
Reader Comments
The US tariff disruptions on gems, leather, and textiles hit our export-heavy states hard. I'm from Surat and saw many small diamond units default on loans last year. Hope this recovery is real and not just a quarterly blip. Need more data on rural MSME and microfinance improvements.
Finally some positive news for the housing sector! 🏠 My husband works in a mid-sized HFC in Bangalore and the e-Khata issue was a nightmare for approvals last year. They've tightened underwriting but still processing loans faster now. The 15% RoE target seems ambitious but achievable if the economy holds up.
I track NBFC stocks and HFCs have been a mixed bag. The recovery in 4QFY26 is encouraging but the report itself mentions macro challenges ahead. The real test will be next few quarters. Those who bought at the bottom in December are smiling now though 😄
Interesting that affordable HFCs are growing faster than large ones. Shows demand is coming from smaller towns and lower income groups. But I'm cautious - these segments also carry higher risk. If rural economy weakens again, we could see NPAs rise. Tighter underwriting is good but let's see.
"Green shoots" - I've heard that phrase so many times in Indian finance reports. But this time the data seems solid. 19.5% disbursement growth, lower credit costs, and sharp asset quality recovery? If this trend continues for 2-3 quarters, HFCs will be
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