Ladies and Gentlemen, good day and welcome to LIC Housing Finance Q2FY26 investors conference call hosted by Axis Capital Limited. This conference may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded now. I hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you. And over to you, sir.
Thank you, Sopnali. Good day, everyone, and welcome to this earnings call of LIC Housing Finance Limited. Today with us we have the management team led by Mr. Tribhuwan Adhikari, Managing Director and CEO. Along with him, we have Mr. Lokesh Mundhra, CFO , to discuss the initial results. Post which we will open the floor Q& A. I would request Mr. Adhikari to share his initial remarks. Over to you, sir.
Thank you, Praveen. A very good morning to all of you friends and welcome to the post earnings conference call of LIC Housing Finance Limited for Q2. As you are aware, we declared our Q2 financial results yesterday after the board meeting. Before I start with the highlights of Q2 results, a brief outline of some of the developments in the economy over the last quarter. The RBI, as in the October meeting, kept the repo rates unchanged at 5.5% and retained a neutral stance while upgrading projections, a signal that the monetary conditions are stable and supportive of credit growth. Rate inflation has moderated sharply with the CPI printing at a multi-year low in recent months, which reinforces the RBI room to remain accommodative. On the housing front, we have witnessed a good resilient demand in Q2 as compared to Q1, which was slightly muted.
For this, it translates into an environment of sustained demand and improved asset quality dynamics and good opportunities to grow the market share while maintaining credit discipline in Q3 and Q4, which are traditionally the strong quarters for the company. With that overview, I'd like to share the key financial highlights for the quarter. Total revenue from operations were at INR 7,163 crore against INR 6,926 crore for the corresponding quarter of the previous year, up by 3%. Outstanding loan portfolio stood at INR 3,11,816 crore at the end of the quarter as against INR 2,94,588 crore as on the same period last year, reflecting a growth of 6%. Out of this, the individual housing loan portfolio stood at INR 2,64,096 crore as well as INR 2,50,879 crore, up by 5%. The housing portfolio incidentally constitutes 85% of the total portfolio.
Total disbursements for the quarter were at INR 16,313 crore as against INR 16,476 crore for the corresponding period. Out of this, disbursements in the individual home loan segment were up by INR 13,490 crore as against INR 13,051 crore, up by 3% YoY. Sequentially, the disbursements were up by 24% as against the Q1 number of INR 13,116 crore. Disbursements in the project loans were muted at INR 378 crore as against INR 1,397 crore for the same period as the previous year. The overall project loan portfolio now stands at about 3% of the overall portfolio. We continue to be cautious and selective in our approach in this segment. Net interest income stood at INR 2,038 crore as against INR 1,974 crore for the same period in the previous year and INR 2,066 crore for Q1 of financial year 2026.
Net interest margins for Q2 financial year 2026 stood at 2.62% as against 2.71% of Q2 of FY2025 and 2.68% of FY2026. PBT profit before tax for the quarter was at INR 1,704.71 crores as against INR 1,664.36 crores in Q2 of financial year 2025, a growth of 2% as compared to Q1. The PBT recorded an increase of 0.33% from INR 1,699.16 to INR 1,704.71 crores. Profit after tax for the quarter stood at INR 1,353.87 crores as against INR 1,338.89 crores for the same period in the previous year, a growth of 2%. In terms of asset quality, Stage 3 exposure at default as on 30th September 2025 stood at 2.51% and again 3.06% as on September 30th of last year.
Total provisions as of 30th September of current year stood at INR 5,074 crores reflecting a provision coverage ratio of above 53% as against a provision coverage ratio of 49% as of the end of the quarter last year. A technical write-off of INR 133 crores has been made during the quarter. These loans were all carrying 100% provision. Also, there was a recovery from written-up loans to the tune of INR 83 crores. In the coming months and quarters, we expect the asset quality to improve further and this trend to continue. On the funding side, the cost of funds stood at 7.42% as on 30th September of the current fiscal as compared to 7.73% as on 30th September last year and 7.50% as on 30th June of last year, a decline of 8 basis points sequentially against the entire borrowing pool of INR 2.72 lakh crores.
Incremental cost of funds stood at 6.73% for Q2 FY2026 as against 7.71% for the corresponding period last year and 6.97% for Q1 of the current fiscal, i.e., a decline of 24 basis points sequentially in incremental cost. With this brief introduction, I would like to invite you for your queries. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press STAR and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press STAR and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mehrukh Adajania from Nomura. Please go ahead.
Yeah. Hello sir.
Good morning.
Good morning, sir. Hello. I just had a few questions. Firstly, on growth, right? Our growth is flat quarter-on-quarter when in general seasonality should be better this quarter. The repayment in core retail also looks on the higher side. Possibly, maybe there are balance transfers (BT out). How do we plug that? How do we accelerate growth from here on? It's just stuck on a year-on-year basis also in that single-digit range. What is there? How do we view growth going forward? That's the first question, especially even in core retail. I'm not even talking about developer or loans against property.
Okay, is that the only question, Nehru?
No, I have one more, sir, in terms of credit costs, we said we see them settling at this 20, 22 basis points range, is that the right way to look at it? Of course, if and when recoveries come, that's an additional upside. Will it be in that range, the credit cost, or would it be slightly higher or lower?
Okay, fine. I'll take your first question on growth. Yes, I do agree that the growth has been, I would say, flat. As you said, we are just showing growth of 5%, 6% year on year and quarter on quarter also there's not too much of a growth. Yes, you are right. The growth to some extent has been hit by balance transfers during this second quarter. If I take Q2, the balance transfers have been to the tune of INR 4,014 crore against a normal run rate of about INR 2,000 crore in a quarter. In Q1 it was INR 2,195 crore. There was a slight pressure on balance transfers largely because of, I would say, the rates the banks are.
In case of a balance transfer, what usually happens when a person goes out, he gets the new, what we call the normal lending rate which is available, which is roughly, which starts from 7.50% by and large in the industry. That was one of the reasons. Yes, we were aware of this. We were waiting and watching what would be the impact. This INR 4,000 crore of balance transfers out in the quarter did sort of take away about INR 2,000 crore of business from our loan book. Had we decided to lower our, what we call, rewriting rates, we could have probably saved on those INR 2,000 crore. As I said in the beginning of the year, this year is going to be a year of challenges in the sense of balancing growth with the spreads and the net interest margins.
We did decide not to be very aggressive on reducing rates as a result of it, which probably took a good hit. We have done it now very recently. We have reduced our rewriting rates to some extent and we are hopeful that this balance transfer challenge is now over. The balance transfer challenge is now over. As witnessed in the month of October of Q3, the balance transfers are at lower levels as compared to June, July, August, and September of Q1. The balance transfer challenge is over. Yes. The other part is, of course, we have to grow the disbursements. The disbursements quarter on quarter have grown by about 24%. Year on year the disbursements are up just by 3%. The quarter on quarter growth of 24% gives us hope that we will do much better in Q3 and Q4.
Traditionally for LIC Housing Finance Limited, Q3 and Q4 have been the most productive quarters when compared to Q1 and Q2. We had in the beginning of the year given you a guidance of about 10% growth, both in disbursements as well as the book. We right now stand at 6%. We are hopeful that the green shoots we see in the increase in divestment from Q1 and Q2 will continue further, accelerate further, and probably by the end of the year we'll be closer to the guided figure of double-digit growth. As regards credit cost, in the beginning of the year we had given a guidance of keeping credit costs within 15 basis points. Right now in Q1 it was 6 basis points. In Q2 it was 5 basis points. Together, 11 basis points.
If you see, though our asset quality has been improving, we have been making a slightly higher provision. Our provision coverage ratio currently stands at 53% whereas at the end of last year it was at 49%. In the last quarter it was 51%. That is partly because of some of the, let me call it the principle or let me say the, what we call is, we have something called the management overlay. Traditionally it means it is at the discretion of the management to decide how much to provide and how much not to provide. Here in this company we have formulated this, or we have had a written down six-point formula on what are the management overlays we are going to provide for. There is not too much of, I would say, management discretion on that.
Because of that, some of the stressed loans which are outstanding for a longer period of time, even though as per the ECN we did not require to provide for them, as per the formula we have fixed for ourselves, we have to provide for a little bit more. The management overlay has been additionally provided in the quarter, which has resulted in a better provision coverage ratio or bigger provision coverage ratio by an increase in the provision coverage ratio by 2%. That was one of the reasons why our credit cost appears to be slightly higher. Going forward, I believe we have made whatever provisions are required to be made. The asset quality is improving quarter on quarter.
A lot of efforts have been taking place to get these recoveries, especially the legacy loans which form a major portion of our Stage 3 portfolio, to get these resolved either through legal methods or through the NCLT or through the DRTs and also through conciliation, negotiation, and settlement. We expect in the remaining two quarters, Q3 and Q4, at least three big loans to be settled. They're very close to resolution, almost literally I would say the final stages of resolution, the final small formalities and modalities need to be worked out. Going forward, I'm pretty sure the I would say credit costs would be further reduced, and I think we would be able to achieve the guided range of 50 bps, which we had alluded to in the beginning of the year.
What is the new rewriting rate now that you adopted now?
It is the lending rate plus 50 basis points by and large. By and large, the lending rate is about 750 so 50 basis points would mean closer to it.
Okay, there's still a difference with banks, but it's lower than earlier. It's helping business. That's correct?
It will help BT out. It will help in containing and reducing BT out. Yes, of course we are at a very peculiar situation. The portfolio we deal in and the segments we deal in are exactly the same ones which banks are lending to. Since everything is repo rate dependent and banks are very aggressive, also they are rewriting for them. Any BT in gets written at the normal lending rate of approximately around 7.5, 7.6%. It will be difficult for us to match that. We cannot go so far low. Yes, we have taken a conscious call that we need to be competitive. We need to somewhat put the brakes on the BT out which were at slightly elevated levels in Q2, and the October results tell us that we have been successful. We are now back to normal.
Okay, sir. Thank you. Thanks a lot.
Thank you. The next question comes from the line of Ramesh from ICICI Bank. Please go ahead.
Yeah, hi sir, just two things from my side. One, on the main. From last two quarters we saw a significant reduction in incremental cost of funds and I do understand that it will not reflect in NIM immediately, but just wanted to check, when do you see the book cost coming down materially and drive NIM higher, and also does your ENR directly link to your book cost? In that case, NIM will structurally remain low as the moment your book cost comes down, next quarter you have to adjust your PLR, which will result in a certain compression. How do you see the NIM trajectory in near term, say next four to six quarters?
Yeah, right now the NIMs are at 2.62% for the quarter. Right. Beginning of the year we have given the guidance that NIMs would be in the range of 2.6 to 2.8. As regards the transmission of the lowering of the PLR, we lowered the PLR in the month of April, 1/3 of my book. That means out of 15 lakh loan portfolio, number of loans lakhs were on monthly reset. They got reset from the 1st of April itself. The rest 2/3, that means 10 lakh loans, got reset from the first day of the next quarter because they were on quarterly reset. The entire 10 lakh loans happened on the 1st of July. The full impact of the PLR reduction was felt in quarter two because the reset happened from the 1st of July on the remaining 2/3 of the portfolio.
I think as far as the reset is concerned, all loans have been reset. There are no further resets which are going to take place. I believe this 2.62 NIM which we are seeing at the end of Q2 is the bottom that we have seen. I do not see any reason why there should be any compression on NIMs any further going further as the cost of borrowing decreases. Now the cost of borrowing is concerned. My borrowing book of INR 2,70,000 crores is divided into two parts. 53% of my book, the borrowing is at fixed cost in the form of NCDs. That is not going to get replaced. That will only happen when the NCDs go out of my books. 43% of my book is linked to the repo, which are basically bank borrowings where I do get the benefit of reduced repo rates.
I would say compression in the cost of borrowing, part of it has come into Q2 and a little bit more will be transmitted in Q3. We can expect the incremental and the cumulative cost of borrowing. Incremental cost of borrowing right now stands at 6.85% and the cumulative cost of borrowing stands at 7.42%. We expect, of course there has been a compression, but we expect it to compress a little bit more further, probably by five or six basis points further in Q3. That will also translate into a better NIM, I would say, adding to the NIM. Going forward, I believe the NIMs, the range which we had given 2.6 to 2.8, we shall be maintaining it. 2.62, I believe, is the bottom of the curve which we are experiencing right now. Going forward, I expect the NIMs to improve slightly.
Yeah, yeah. Lokesh Mundhra CFO, I just want to add something to you. Last quarter on 30 June, our cumulative cost of borrowing was 7.50%. Now it has come down to 7.42%. There is a question of almost 8 bps point if you compare on a quarterly basis, the last quarter. For the last quarter, incremental cost of borrowing was 6.9% which has come down to 6.73%. There is a reduction of 24 bps and this year almost INR 15,000 crore, INR 14,000 to 15,000 crore, NCDs are going to be repriced by end of March. We are end to 12 GP is further cut in our cumulative cost of borrowing.
Got it. Okay, just. Just to follow up on that. I mean the moment your cost of borrowing comes down, how often you sort of reassess the PLR rate? Is it quarterly, 6 monthly? How is it?
Reviewed on a periodical basis? Our PLR is repriced based on our cost of borrowing and other factors. We review it on a quarterly basis, and PLR after reviewing if the cut is required. It all depends on the cost of borrowing and other factors.
Got it. Got it. My second question is again on the growth side. Honestly, our growth is one of the lowest in prime green despite such a strong brand and competitive pricing. I'm just referring to your slide number 12, wherein the ticket size is increasing; however, even growth continues, which means logging must have been lower in the recent past. What are the plans to accelerate logging eventually in the deferred? Also, do you feel there is any need for a structural change? We are doing business considering the interest competition. Do you feel there should be any incentive or a branch structure as to change in the product?
Yeah, Renish, coming to growth. Yes, that is I believe the biggest point of worry for us as management. Also, as a company, I have stagnated over quarters, but I believe over the last few years the kind of growth we envisaged or thought about have not come about. Yes, there is a lot of soul searching going on within the company. What do we do? What do we do with the distribution model? Is there something done in the distribution model? Is there something to do with the structure of the company, and towards that, the Board has guided us or the Board has asked us to go in for a comprehensive look at the entire structuring of the company in terms of offices, the locations, also in terms of the distribution channels and what we need to do. We are right now in the process of boarding a consultant for this process.
Probably three to six months we will be going through this entire exercise in conjunction with the Board and having a look at the overall here and seeing what are the areas which are holding us back, which are the areas where we need some restructuring, some change, some slight tweaking or a major rehaul overall. That is a process we are going through for the current financial year. If you may ask me, two areas, two issues which we need to address directly. See, we are a company which is overly dependent on agency business, right? About almost 87% of my business is through agents, as you know, agents in the company. Hence, they are not tied to our company alone. They are freelancers and they do business with other companies and other lending institutions.
The question is how do we sort of get more business out there, how do we increase their productivity, how do we make sure that the businesses which they are diverting to other companies comes to us? That would include a further one is the cost factor and the rates. Of course, the other part of it is the tax and various other formalities which are also associated with it that we are doing. The other part of it, we are also trying to develop an alternate channel. In fact, we are working on two alternate channels. One is the lead business. This is a business which we were not very much focused on. We started off last year and the whole of last year we did about INR 8.00 billion of business through this channel. This is a direct business channel.
We get leads through various sources, online and offline. Now these lines are funneled or aggregated together and pushed down the chain to our operating offices who then follow up on these leads and convert them into business. Last year we did INR 800 crore through this channel as we call this year. We have already crossed INR 750 crore in H1 which augurs well for us. Target for this year is INR 2,000 crore through the lead channel. This is another channel which we see a lot of potential and scope in. It helps me also because it reduces my cost also because I don't have to pay commission to the agents. This is so cost and neutral.
The other, we also have a subsidiary called LIC Housing Finance Financial Services Limited which is a subsidiary of LIC Housing Finance Limited which was formed basically for doing sort of housing loan business and other business was an insurance. It was on the structure of HDB, HDB which housing HDFC sales channel. That is right now contributing to 10% of my business. We are strengthening the channel. We are after them. We are asking them to go in for further recruitments and increasing their marketing force. Here we are looking at getting 15% of our total business to come from this FSL and going forward in the next, we want them to contribute at least 25% of our business. These are what we are doing, the retail front, quarter on quarter.
Yes, there is a 24% growth in the business Q1 to Q2 so that these green shoots gives us hope that Q3 and Q4, which are traditionally strong quarters for LIC Housing Finance Limited, we will see better growth in Q3 and Q4. Only worry is the construction finance and the project finance channel, if I may call it, where the performance has been very, very muted this year. As against INR 1,397 crore in H1 of last year, we have only been able to do INR 156 crore for H1 of the current fiscal. There is a big dent of almost about INR 900 crore there, INR 800, 900 crore there. Yes, as we said, we continue to be cautious and selective in our upcoming approach to this construction finance segment. We have a strong pipeline of undisbursed sanctions which will be coming forward.
Hopefully this channel contributed about INR 4,000 crore of business last year. The construction finance channel this year we are hopeful that we are going to surpass this not by much, but we are targeting at least INR 5,000 crore of business from the construction finance channel this year which would come majorly in Q3 and Q4. That is the headline.
The silver lining is that last year in the same quarter, average yield on the project finance was 10.35%. It has increased to almost 1.68%. There is a. There is an increase of almost more than 200 bps in the project finance. So on a case to case basis, that is why our margins are intact. We are focusing more on margins.
Got it, got it. Thank you very much, sir, for a detailed answer.
Thank you. Thank you.
Thank you. The next question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah, hi. Just helping on this question of PLR. The last cut was in April, and thereafter we have seen reductions in terms of the repo, and we are seeing the incremental cost of borrowings also coming off like almost 60 basis points, maybe 20, 24 basis points this quarter itself. Would we be revising the PLR, or maybe now we are good enough with the rewriting rates and new rewriting rates, and there is no need to change the PLR at this center because. We want to protect the margins. Yeah.
Yeah, Kunal. At the beginning of the year I said this year is going to be a difficult year for us because we would be required to balance our growth of books, growth of disbursement with the NIMs and the spreads. Right. This is what we had said in the beginning of the year and I'd also said that push through the wall. I would prefer to protect my margins and NIMs rather than going for growth of business at which is not very profitable to the company. We have been doing that. Yes, we have cut our overall PLR by 25 basis points across the board. You may say this is less when compared to the 100 basis point cut in the repo rate. However, the repo rate transmission does take time. Yes, 24 basis points. Incremental cost of borrowing has gone down by 24 basis points quarter on quarter and about 90 basis points from the beginning, from year on year. The full transmission has not been felt. Now going forward, as I said, we would like to protect our margins. While answering to Ravish, I said my construction finance portfolio is down this year, almost INR 900 crore deficit. That is a conscious call we have taken. Banks are very aggressive on this front.
They are giving construction finance loans almost at home loan rates, which we are not comfortable doing. We would like to have some margins in the project and the construction finance business. As CFO said, the margins in the construction finance business are almost what our yields are, almost 12%, 12.5%. These have gone up from almost 11% of last year. Yes, we would like to do business, but definitely we would like to do profitable business. Going forward, I do not, until and unless something drastic happens on the repo rate front in probably December or something of that sort, I do not see any scope for any further reduction in rates. Also considering that we have very recently, in the last month, in the month of October. September, October only, we have sort of reduced our rewriting rates quite significantly, almost by 75 basis points.
Our early rewriting was at a flat 8.75%. Now we are offering them at the lending rate plus 50 basis points which roughly translates to 8%. Given these two reductions in the rewriting rate and the overall PLR, I do not see any scope for any further reductions.
Got it. Perfect. Secondly, when we look at it in terms of the overall BT out of INR 4,000 odd crores, what was the request that had come in and how much we have been able to retain. Finally, we saw this BT out of INR 4,000 crore.
I don't have the figures, Kunal. Honestly, what were the total number of applications received? How much did we retain and how much went out? I don't have the figure exactly. That can be found out. Overall, just wanted to get.
The sense, since you mentioned like now it will be much controlled with this newer rewriting dates, just wanted to ensure that maybe was maximum, the BT out was already there, and maybe now you would be able to retain some part of it. That's giving you the confidence.
Right. Because at 8.75% even if we had tried to retain, I don't think we could have made much of an impact when banks were offering at 7.5%. It is difficult to retain a customer at 8.75% that you would also allude to. With the reduction in BT rates, we have seen in October our BT out has reduced significantly when compared to July or August or even September. I think at 8% roughly we should be able to retain much, much more as compared to what went out. Normally our run rate was about INR 2,000 crore per quarter, and in the last quarter it was INR 4,000 crore, straight away meaning that our BT out had doubled. I lost almost about INR 2,000 crore.
Out of this INR 2,000 crores, even if I assume that INR 500 crores would have gone, we could have gone at least at the end of INR 1,500 crores. Definitely, because of higher rates, this would have taken place. Probably my book would have grown by INR 1,500 crores more had I lowered my RE rating rates at the beginning of last quarter. I think that RE rating rates reduction has taken place. In Q3, I am expecting the BT out to come down to normal at INR 2,000 per quarter. I expect that to be at that level.
Got it. Lastly, in terms of the improvement in GS3 and GST, is it largely retail because of this focused direction which was there post Q1, or is there some element of corporate recoveries in this improvement in GS3, GST?
The asset quality has been improving quarter on quarter past four, five quarters almost. Yes. This is if you understand the recovery thing is not that I do something this month and I get results next month. Especially if you look at our entire book, most of the Stage 3 is pertaining to our legacy loans, particularly 2016 to 2019, and some of these loans, about 10, 12 of these loans are big loans, INR 200 crore and above. It does take time, especially the legal process. As you know, in India it takes time. Whether it be the SARFAESI method or whether NCLT or DRT, these things take time. This is a continuous process which has been going on, and the improvement in the asset quality which you see is the result of what has happened probably 3/4 back or 4/4 back. There is no easing on the pressure. We are increasing the pressure. In fact, there is another thing which we have not done so far.
There are these willful defaulter guidelines issued by RBI. We have not yet initiated this, but for the, I would say, very obstinate and tough people who are not willing to negotiate, not willing to settle, not willing to talk, I think we need to initiate the process of declaring them willful defaulters, and all that is basically to put on pressure. Going forward, I feel this recovery from NPA will improve in this quarter. If I see as compared to the June quarter, my Stage 3 has come down by INR 742 crore. Recoveries are happening going forward. I am hopeful that two to three big loans, and when I say big loans, I mean INR 200 crore and above, two, three big loans to be settled. They are very close or almost on the verge of settlement or final agreement between us and the borrower.
One is in NCLT. We're expecting a decision anyway now in the next 14, 15 days. These will all help us improving the asset quality and reducing the credit costs.
Got it? No, I was just asking this quarter also, was there any resolution or no? In Stage 2 and Stage 3, the improvement was it from the corporate or it was from retail?
It was both corporate. I think there was one big loan of about INR 140 crore which got resolved, but the entire thing did not come. I think we got about INR 60 crore of that. The rest is true because it is scheduled repayment. The rest of it would come in Q3 and Q4.
Okay, this was in the Stage 3?
Stage three.
Got it, got it. Perfect. Only INR 60 crore in Stage 3 from the corporate, otherwise the balance was largely from retail.
Yeah, yeah.
Okay, perfect. Yeah, thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address the questions from all the participants in the conference, we request you to kindly limit your questions to one per participant. Should you have a follow up question, please rejoin the queue again.
The next question comes from the line of Abhijit Taderawal from Motilal Oswal. Please go ahead.
Good afternoon, sir. Thank you for taking the question. Before I do that, may I request the operators that the operator lines and the participant lines are from coming great. The management line, at least for me, is not very. I don't know about that.
I try to come closer to the phone and speak so that you can hear me loud and clear.
Two questions. First thing is, I mean just a clarification in terms of this PLR changes that we have done total until now, right? Since the time the reported cuts have started, how much PLR cut have we taken? Is it 25 basis points or cumulatively 50 basis points? One 25 basis points effective from 1 April and the other one was 20 April? Thereabouts. Just a clarification on that.
Okay, let me. We have made only one. We had changed the PLR only once. That was in the month of April. Where we reduced it by 25 basis points, right? There's been only one cut of 25 basis points. Now what has happened is that my book is divided into two parts. There are about 1/3 of my loans, almost 500,000 loans, which are on monthly resales. So 500,000 loans got the PLR reset from the 1st of April. The moment I declared my PLR cut, they immediately got repriced. 1/3 of my book, 2/3 of my book is on quarterly reset. That means the PLR reset happens on the first day of the next quarter. Since the cut was somewhere in the middle of April, the PLR got repriced from 1st July. Almost 1,000,000 loans got repriced from 1st July. Right now, 100% of my book has been repriced by 25 basis points.
Logically speaking, the entire back book has been reset. What we are going to see is yields might stabilize till the time you take your next.
Yeah, cost of funds should improve transmission. The cost of borrowing should improve further. Expecting that another 10 to 10 basis points reduction in the cost of borrowing by the end of the year.
Got it. My second question was if I look at LIC Housing Finance Limited as a franchise for almost this decade, from maybe 2012 to 2022, we used to operate at lower margins, still deliver respectable ROAs. Because of that growth which was there and which used to give you leverage in the balance sheet, we still used to deliver very respectable ROEs. Essentially, we were still delivering growth and healthy profitability. Right now, I'm sure in the call you have made it very clear that we will prioritize profitability over growth, but can't we do some trade-off in terms of margins to maybe at least get to a respectable double-digit growth? When I look at it, right, since maybe 2020 the company has not been able to get to a double-digit growth.
I appreciate the fact that it's a much, much bigger franchise now, so growing at the same rate might not be possible. You would have seen, right? All the participants who have participated on the call today, all of them have been asking about what steps can be taken for this growth. Lastly, sir, the data keeping question, we usually share the segment-wise Stage 3 on the earnings call. If you can also share that with us. Thank you so much.
As I said during my reply to Ramesh and others, this is one question which has been bothering me. Growth. Yes, I do agree to what you're saying that we are a big company, INR 3 lakh crore of AUM. Definitely expecting me to grow at the same rate as some of the smaller companies, not possible. Definitely this growth of what, 7% or 8%, whatever we call it, not acceptable at all. This is the biggest question which is worrying me, which is worrying the board as to how do we grow. One of the methods, I would say slightly what I call an inorganic method, is probably going for co-lending or direct assignment. This is something which we have not at all tried in the past. All our business is totally what we directly source either from agents or through direct business or whatever.
There is a scope for getting into co-lending arrangements, into going in for direct lending or direct assignment, which can also boost my book. Yes, that is something which we are exploring right now. We are framing co-lending and a direct assignment policy, which we will get approved by the board. The board also agrees that yes, we need to have a policy and need to explore this particular channel of growing the book. Probably that is one method which we need to deploy or employ, if you may call it. Yes, definitely. The other thing, as I said, I think we really need to have a relook at the organizational structure we have, the various marketing verticals we have. Do we need any change? Because something is sort of pulling us back, not allowing us to go.
One thing is for certain, I will not say that there is no demand for housing loan. There is definitely a demand for housing loan. It is only going to grow as I see it. It is only going to grow as the economy grows and the sentiments turn positive. Definitely, we really need to do something about it. Yes, this year also I do not say that we are going to do something exponential in the remaining two quarters. We'll be very happy to achieve a double digit growth both in the divestment and in the book by the end of March. Traditionally, quarter three and quarter four are good quarters for us. Last year it was slightly subdued because of certain problems in Bangalore and Hyderabad, three of our major contributors, two of the major regions contributing to our business. This year both the regions are back on track. This year definitely these two regions will contribute much, much more as compared to Q3 in last year and partly Q4 of last year.
There will be growth, 24% growth. From quarter on quarter, we want this growth to go up further. If there will be growth in business, even our double digit growth, I don't think would satisfy me. We need to look at ways and means of coming to somewhere around probably 13%, 14%, and I think that is doable with a little bit of structural changes, probably some more rethinking, more brainstorming at the corporate level and pushing it down. We are engaged, we are worried. Hopefully we will be able to Turn the corner in probably one or two years.
Yeah. Segment wise, yeah. No, you want it separately for IHN?
Yes, sir.
For individual it is 1.15% only. Project, it is project plus non housing corporate, so it's 24.88%. Non housing individual is 4% only. Totality is on, it's 2.51% of the total portfolio.
What did you say about non-housing individual?
Non-housing, individual only non-housing. Right now we don't have breakup of non-housing. Let me check it.
1.15 project plus non-housing commercial, which is 22.88. This is a third number which was.
That's right. 4%. 4%. 4%.
Okay. Thank you so much. Thank you. Thank you.
Thank you. Thank you.
Thank you. The next question comes from the line of Prithviraj Patil from Investec. Please go ahead.
Right. Thanks for the opportunity. My question was what is the incremental yield that you are seeing in the business? Sorry. What is the incremental cost of funds. Yeah. If you can hear me. Hello. Am I audible?
Yes, please proceed.
Yeah, please go on.
Yeah, what is it? What is the incremental yield for the disbursements?
Incremental yield for the disbursement first half is 8.78% and 8.78% as on 30-09-2025.
Okay. Okay, thank you.
Thank you. The next call comes from the line of Shweta from Ilara Capital. Please go ahead.
Thank you, sir, for the appointment opportunity. Just to close the argument on the PLR front, given the fact that a larger part of the book is trending at 8% levels, these are the comfortable levels for you wherein you're confident that BT outs will be restricted and therefore no further PLR tweaks are required. Is my understanding correct?
Yes, we have repriced both our existing book as well as the rewriting rates. The existing book is repriced at 25 basis points and our rewriting rates, which were at a flat 8.75%, have been repriced to 50 basis points above the fresh lending rate. So roughly around about 8%. I do not say that this will result in no BT out because again, BT out, see, if you see the biggest problems in BT out, when a loan goes out of my book, it enters the other institution as a fresh loan, and naturally the fresh loan rates are lower than the existing loan rates.
For example, if I take supposing a loan goes up from my book to State Bank of India, the lending rates at State Bank start at 7.5% or probably he would be getting the loan repriced at probably 7.6% or 7.7%, whereas my repricing is at 8%. There could be some customers who would go out because of this 20 basis point difference or 25 basis point difference. By and large, I think customers are not so, I would say, sticky on 20, 25 basis point difference if their experience has been good in the existing company. I am pretty sure that this huge uptick in the BT out, doubling of the BT out if I may say, because as I said, the average run rate was INR 2,000 crore and in Q2 we witnessed a run rate of INR 4,000 crore.
The doubling of the BT out will not happen. We expect this to come down to either the original levels of INR 2,000 crore or even further probably t o crores level.
You know our REITs, our REITs. The new business is very competitive. It's matching with the other initial issues like bank and other SFCs. If what sir is, what CMD is giving example, if the customer is having a similar CIBIL score, is offered 7.50%. If other institutions are offering 7.50% or 7.65%, what sir is saying. There is definitely some documentation cost, and that documentation cost is almost 40 to 50 bps in that case above 7.5%. Our rewriting rate is just 50 bps above the fresh lending rate. It's matching only. I don't think our business will transfer out. We are very confident that in this quarter SBT will be restrict.
The second question I had in terms of ECL. When is the annual reset exercise for us as far as ECL is concerned, and what is the period of consideration for us for those PD LGD calculations? Thank you.
No, Shweta, PG, PD, and LGD is done on a quarterly basis. Right. Every quarter we run the ECL model and our EPD and PD, LGD is calculated on a 10-year database. For example, if I take the September quarter, so September quarter 2025, that means the assessment of PD and LGD would be on business done from 1-10-2015 to 30-9-2025. Every quarter, three months would go out and three new months would be added to calculate PD and LGD. What was the first part of your question?
When is the ECL research exercise that happens?
ECL retake reset. Can you just explain that?
How many months you consider for calculating the expected trade loss, like backwards and ahead? What are the periods into consideration for calculating the expected trade loss?
PD, LGD is on a 10-year, and from the end of the quarter 10 years back, we take, we go. Any loan, all loans attaining to those last 10 years are taken, and based on their experiences, the PD and LGD is calculated, and the ECL is based on the PD and LGD. ECL is calculated on the current loan book. Does that satisfy you?
Yeah, you answered the question by mentioning tenure period. Got it, sir. Thank you.
Thank you. The next question comes from the line of Kushagra Goyal from CLSC. Please go ahead.
Sure. Thank you for taking my question.
I'm so sorry to interrupt in between. Sir, your voice is not audible.
Yeah. Is this better? Hi. Thank you for taking just. Sir, could you give some more color on the competitive intensity? I know we have talked a lot about growth, but if you could just talk about more how you see the PSU banks behaving going forward. That would be helpful. Secondly, if you could give some more color that I know we are. not reducing CLR and all the impact. I think, can the incremental yields come down further from current levels? How should we think about it?
Yeah. Kushagra, right. As regards what PSB banks are going to do, I don't know. I do not know whether I can take a call on that. One thing definitely, PSB banks are very, very, very aggressive right at the moment. I do not know why the aggressiveness has come about. Is it something to do with reducing their unsecured lending portfolio? Because housing finance, as you know, is a 100% secured portfolio backed by solid collaterals. What we are seeing is PSU banks are very, very aggressive, right? Offering rates as low as 7.35%. These two banks I know are offering new loans at 7.35%, whereas most of the bigger banks, PSU banks, are at 7.5%, where we are exactly right now. I believe we are competitive as far as that is concerned insofar as that is concerned.
Unfortunately, we are a housing finance company. We are not a bank. The segment we operate in, if you look at my book, it is almost 85% salaried and probably in percentage and another 5% to non-housing corporates, etc. The segment we operate in is exactly the segment in which the banks are operating. Quite naturally, there's a lot of competition, there's a lot of pressure, and banks are very, very aggressive. As I said, even in the construction finance book, which we are not doing very well at the moment, banks are very aggressive. In the construction finance book, there are cases where PSUs have offered rates which are almost at par with the individual lending rates, and these are rates being offered to construction finance companies, which we are not very comfortable with. We would not do. The competition is intense. The competition is quite aggressive.
Nothing we can do right now, overnight is not going to change. I cannot ask my people to stop selling to savvy customers and totally focus on the self-employed. We are trying to change. We are trying to change our product mix so that we are a little more, I would say, focused on the self-employed segment and the other segment. As I said, affordable, we exported last year. We are very, very slow, cautious on that segment. We are growing the book, but we're at a very slow pace, and we are comfortable with that. We don't want to take an aggressive stand on that and enter into problems. We are first trying to set up a new team, completely separate team for the affordable segment. Something like what PNB has done for its Roshni vertical. It will take two, three years' time. I do understand that. At the moment, competition from the public sector is very, very intense. The other part, what was the second question? Kushagra, I just forgot.
That was on the incrementally.
Yeah, the incremental yield.
Yeah, yeah. Incremental yield for this H1, that is 8.78%. We don't see any downside in yield part. On the other side, on the cost of incremental cost of borrowing, definitely we are expecting 10 to 12 bps. Definitely our spread would be in line with the work, with our situations.
Okay. Okay, thank you.
Thank you. The next question comes from the line of Rajiv Mehta from Your Securities. Please go ahead.
Hi, good afternoon, sir. Most of my questions are answered, but these two things. First, on the borrowing side, this borrowing which you sourced in Q2 at 6.73%, can you tell us mix. Can you tell us the fresh pricing for entities for bank loans and whether the whole repo benefit on the bank loans on the existing bank loans has already come through?
Yeah you know, Rajiv, our borrowing structure is almost 55% fixed, what we have raised through NCDs, and almost 45% is floating. So whatever we have raised funds at floating rates mostly from the banks only. The total average borrowing cost is 7.42%. This year, definitely we are focusing more borrowing through banks only. This quarter, almost 92% we have borrowed from banks.
Okay, okay. Can you quote the fresh bank loan pricing? I mean, is it below 7? How much is it for the banks? Similarly, if you would also raise, see a 3-year, 39-month NCDs in the market right now. What will be the cost of NPDs?
Yeah, this quarter we have borrowed from banks between 6.75% to 6.90%. Between 6.75% to 6.90% and NCDs we have raised around 6.892%. 6.90%.
Okay. Just one last thing. In terms of new home pricing, which I think we last reduced in June b y 50 basis points. Given the fact that we want to preserve margins even at the cost of growth, if the competition were to become more aggressive in terms of new loan pricing, we should not follow competition. That seems to be the approach. Is that understanding right?
Yeah. No, it's not a basis. It's not 50 basis point cut. We have cut the home loan rates or the PLR, if you may call it, by 25 basis points in the month of April. After that, there have been no PLR cuts. No, sir, in June, I think June you reduced the new driving by 50 basis points to 7.5. New loan. Yeah, new loans. Yes, I'm talking about new loan. Yes, new loans. We brought it down by 50 basis points to be competitive with the rates being offered by the PSUs, which is at almost 7.5% by and large. We are also at 7.5%. That has already been done. Now, assuming the same scenario continues, I do not see any scope for any further reduction in the pricing for new loans. I think we are fairly, fairly competitive enough.
I don't see any way we can afford to bring it down any further. As I said in the beginning of the year, we need to balance growth along with our spreads and margins. Given a choice, I would like to protect my spread and margins as compared to going aggressively for, I would say, non-profitable growth. We intend to follow that same trajectory. I think as far as I am concerned, the new loan rates are where they are and we would like this to continue for the rest of the year until and unless there's something majorly happening, probably in the December MPC or nearby or somewhere near that.
Got it, sir. Thank you.
Thank you. A reminder to all the participants that you may restrict the questions to one per participant. The next question comes from the line of Bhaskar Basu from Jefferies. Please go ahead.
I had two questions actually. Firstly, what would be the deal on the portfolio of home loans, you give the total portfolio of 914, but the home loan means for the procedure. I also just wanted to understand how does this whole rewriting thing work. Someone who's looking for a balance transfer, you offer an 8% yield for them.
Yeah, I'll come to the rewriting part as regards the sort of yields, CFO G will answer it. Coming to the relating part of it, over a period of time the loans would have been given at various rates of interest, and depending on the increase in PLR or lowering of PLR, the rates would have been reset either monthly or quarterly. Right now the customer would be standing with a particular rate of interest whenever he comes to us for a rewriting request. We do assess the CIBIL score because rewriting rates are not flat 8%. They are dependent on the CIBIL score of the borrower as on date.
So. We would be assessing the score and the other risk factors associated with the loan. Based on that, we would be giving him a rewriting rate at which we would rewrite his loan. Broadly speaking, the rewriting rate is at 50 basis points higher than the lending rate right now. Lowest lending rate is 7.5%. Add 50 basis points to that, so that comes to roughly 8%. It does not mean that everybody gets rewritten at 8%. It would also depend on the CIBIL score and other risk factors associated with it. That is about the rewriting, and as regards the yield on the various.
Yeah, that's correct. Segment 50 as of 30-09-2025 for individual, as we know, is 9.24%, and for non-housing individual, 10.22%, and for non-housing corporates, including construction finance, it is 10.54%. The average is 9.40% for this as on 30-09-2025. On incremental basis, segment-wise, individual home loans is 9.03%, non-housing increase is 10.21%, and non-housing corporate, incorporating, is 10.47%.
Right. My connected question was that your overall housing portfolio is sitting at around 9.2. I understand that there will be various borrowers at different categories of civil score, but this is still fairly above, well above your rewriting rate. Don't you see a lot of these borrowers coming for reset or at least coming down to that rate, 8% or whatever the rewriting rate is? My question is whether this back book continues to reprice going forward even though we may not have another PLR cut.
For rewriting. That 8% is a minimum rate. If a customer is having the highest ability score, more than 800 points, in that case we are offering 8% for new business with 7.50%, but it depends on the CIBIL score of the customer. Minimum rate for rewriting.
I do agree, yes, by reducing the rewriting rates. The question is do we expect all people to come to us for rewriting? No, that usually doesn't happen. If you take the experience of Q2, out of a book of 1.5 million loans, a total of 13,750 customers took a BT, right, transferred their loans from us to the banks. By and large, I would say the rewriting would happen for, in a quarter, about INR 1,000 to 1,500 crore of business. It is not that my entire bank book is going to get repriced because of the rewriting facility which I offer. Yes, definitely people will be coming and going, and anybody who is probably at 8.5% or more than that would definitely want to reprice his loan at 8% or nearby.
Right. I get it. Basically, there'll be some repricing which will continue, obviously not to the extent of the PLR cap, but at least a reason portion of your back book will continue to some repricing.
It's a call. Rather than have INR 4,000 crore of business go out of my books completely where I earn nothing, it's better to get something at 8% given my cost of borrowing at 6.7% to 6.75%, earn at least 1.25% rather than nothing at all.
Understood. One last question on the OpEx side. We saw a sharp decline in the employee cost. Any specific reason for that? How should we think about sustainable employee cost, etc.? It was like INR 140 crore?
Bhaskar. Last year was, let me call it, a year of wage revision and IAC, right. The wage revision of all the employees in the company was due. We were making provisions all through last year. Every quarter, we were making provisions for this once we start active. You can call it the supposed increase in the salaries of the employees. Now that the wage revision has been done, the salary cost is now fixed. There is not going to be any other. There is no impending wage revision until August 1, 2027. No provisioning for wage revision is being made. That is the reason why the salary cost has come down.
For example, between 1Q and PQ, 1Q was like INR 160 crore, PQ was INR 140 crore. Where is the kind of, how should we think about the run rate actually, whether 1Q is a better benchmark or 2?
Salary cost. You have the breakup, you're just interested basically the impact of provisioning only. I don't see any reason why we are the employee cost, employee cost. The actions for Q2FY 2025-26 was 143, right?
Yes. 1Q was 160. Even between 1P to 2P, we've seen an INR 20 crore draw.
I think the employee cost would remain at the current levels. I think INR 143 crore, at the most probably INR 150 crore, not more. There is nothing which is going to get added to employee cost, except probably in Q4 where we do make provisioning for gratuity. Think Q3 is going to be in the INR 50 crore range. Should not be INR 160 crore, with what it was in Q1, probably be in the range of INR 150 crore employee cost. Nothing has been done which is going to increase my employee cost. No new hirings or anything of that sort.
Got it. Thanks. That's all for myself.
Thank you. The next question comes from the line of Subramaniam Iyer from Morgan Stanley. Please go ahead.
Thanks. My questions have been answered. Thank you.
Thank you, ladies and gentlemen. That was the last question for today. I would now like to hand the conference back to the management for closing comments. Over to you.
Yeah, thank you. Thank you, friends, for your questions and the concerns which you have shared for the company. Yes, overall the company is doing well in all fronts except the growth front, as all of you alluded to. As I said during my conference call, this is something which is worrying us, not only the management, the board also. This is something we need to get out of and move forward towards an assured path of growth which continues quarter on quarter. We are working towards that on various fronts. Q3 and Q4 traditionally are very strong quarters for the company. Going by the situation in the market at present, as far as demand is concerned, as far as all the other factors are concerned, I think are all positive.
There is nothing which I see in the horizon which is going to sort of retard our progress or stop our progress from going aggressively in these two quarters. As I said, Q1 to Q2, we have seen green shoots already, especially on the retail front, the 4% growth displayed from Q2 as compared to Q1. I believe that Q3 is going to be even stronger. Going forward, the company expects to do better both on the disbursement front, the loan book front, the asset quality front is doing well progressively and we will continue to grow progressively. The quality is going to improve. Provisioning requirements are going to reduce. Some big resolutions expected. Hopefully all this put together will turn out, will transform Q2 into much stronger quarter for LIC Housing Finance Limited. Look forward to your assured support and cooperation. Thank you. Thank you all.
Thank you on behalf of LIC Housing Finance Limited. That concludes this conference. Thank you for joining us today. You may now disconnect your lines.