Housing finance companies (HFCs) are under considerable strain due to aggressive mortgage pricing by public sector banks, leading to reduced margins. Although loan disbursals are growing, many HFCs are not experiencing a corresponding rise in assets under management (AUM), primarily because borrowers are transferring their home loans to rival firms.
In the June 2025 quarter, Bajaj Housing Finance reported a 0.5% drop in net profit, while Aadhar Housing Finance and LIC Housing Finance experienced growth rates of 10% and 5%, respectively. The recent reduction in lending rates by the Reserve Bank of India, which cut the repo rate by 100 basis points this year, has caused a decline in net interest margins.
Bajaj Housing Finance currently offers one of the lowest mortgage rates at 7.35%, as per its website, compared to Canara Bank, whose home loan interest starts at 7.40%.
The competitive pricing is impacting even leading firms like LIC Housing Finance.
“The competition is fierce, and at LIC HF, we find ourselves in competition with banks, especially since our focus is on the prime segment where banks are active,” stated Tribhuwan Adhikari, managing director of LIC Housing Finance. “Consequently, we’re engaged in a rate war, and we’ve adjusted our rates to compete with the banks.”
LIC Housing Finance sets the interest rate at 7.50% for loans up to ₹5 crore for applicants with a CIBIL score of 800 and above, according to its website. The company’s disbursements rose by 2% in the first fiscal quarter ending June, totaling ₹13,116 crore, while the previous year saw a 19% increase to ₹12,915 crore. Atul Jain, managing director of Bajaj Housing Finance, predicts that margin pressure will persist in the upcoming two quarters.
“The intense competition is fueled by rate cut pressures in our operating segments,” he commented. “We expect this pressure to continue for another quarter or two, after which we anticipate returning to a more typical trajectory.”
Jain emphasized the inconsistency between disbursements and AUM growth in the face of pricing pressures.
Bajaj Housing Finance recorded a 22% rise in disbursements to ₹14,651 crore in the first quarter, but its AUM saw a mere 0.6% increase, from ₹5,701 crore to ₹5,736 crore.
“This discrepancy is a result of very stiff competition,” Jain noted.
