Non-bank lenders' home loan growth will slow down in FY26: Report

Non-bank lenders' home loan growth will slow down in FY26 owing to aggressive play by state-run banks in the market, a report said on Wednesday.

Non-bank lenders' assets under management are likely to grow by 12-13 per cent, down from 14 per cent in the preceding fiscal, despite a slew of tailwinds, the report by Crisil said.

The challenges faced by non-bank lenders include "intense competition" from banks, which continue to dominate the prime home loan segment, it added.

"Public sector banks have upped the ante and surpassed prime-focused housing finance companies (HFCs) last fiscal and in the first half of this fiscal," the agency's director Subha Sri Narayanan said.

Narayanan said competition in pricing is evident from the strong growth in lower-interest-rate home loans of banks, as the share of the sub-9 per cent interest rate portfolio increased to over 60 per cent as of March 31, 2025, from 45 per cent last year.

"Many large HFCs are facing increased customer churn through balance transfer cases," Narayanan added.

Homeloan is the largest segment in the mortgage assets under management for the non-bank lenders, contributing 59 per cent of the pie, Crisil said.

In the recent past, some lenders have flagged concerns on the "irrational" rates offered by competition, especially state-run lenders, in the home loan market and attributed the same to slower home loan growth.

The rating agency said the growth is slowing down even as structural drivers for the home loan segment are holding up, including low mortgage penetration and rising urbanisation. Affordability indicators are also supportive as disposable incomes continue to outpace a rise in house prices amid lower interest rates.

Additionally, the revisions in income tax slabs and the GST rationalisation also emerged as major factors.

Apart from competition, the agency said an expected moderation in residential real estate sales growth in value terms across the top seven cities is another challenge confronting the non-bank lenders.

The overall AUM growth on the mortgage side will be stable at 18-19 per cent in FY26 against 18.5 per cent in FY25, the agency said, attributing it to faster growth in wholesale lending.

The AUM growth is expected to slow down in the case of loans against property to 27-29 per cent from 32 per cent in FY25, the agency said.